SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits

April 30, 2012

 

OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

USAID Has Disbursed $9.5 Billion for Reconstruction 

and Funded Some Financial Audits as Required, but 

Many Audits Face Significant Delays, Accountability 

Limitations, and Lack of Resources

This report was originally issued on April 30, 2012. It was reissued on May 2, 

2012, to reflect the U.S. Agency for International Development’s (USAID) written 

comments on a draft of this report. USAID provided its comments to SIGAR after 

the original report had been publically released, but SIGAR considered the 

comments substantive and necessary for a full understanding of the issues presented 

and USAID’s efforts to address them. As a result, SIGAR made changes to the 

summary page, the transmittal letter (page i), and the Comments section (page 22) to 

reflect USAID’s comments. USAID’s comments are reproduced in appendix III.
SIGAR 

Special Inspector General for Afghanistan Reconstruction

SIGAR Audit-12-9 April 2012 

USAID Has Disbursed $9.5 Billion for Reconstruction and Funded 

Some Financial Audits as Required, but Many Audits Face Significant 

Delays, Accountability Limitations, and Lack of Resources 

Since 2002, the U.S. Agency for International Development (USAID) has awarded $15.2 billion in Afghan reconstruction funds to its 

implementing partners through 305 major (over $100,000) contracts, grants, cooperative agreements, and other funding mechanisms. 

Financial audits of funds expended under such awards provide USAID with independent assessments of how those funds were used. 

Ensuring that financial audits are conducted in a timely manner is critical to provide accountability over reconstruction funds in 

Afghanistan where USAID has experienced challenges in monitoring program implementation. 

This report (1) identifies the awards that USAID has funded for Afghanistan reconstruction since 2002 and (2) assesses the extent to 

which financial audit requirements had been met for the various types of awards and implementing partners. To address these 

objectives, SIGAR selected a random sample of 64 awards to determine if audits had been done, reviewed applicable requirements 

and award files, and met with USAID contracting officers and other officials. SIGAR conducted its work in Kabul, Afghanistan, and 

Washington, D.C., from March 2011 to March 2012 in accordance with generally accepted government auditing standards.

What SIGAR Reviewed

What SIGAR Found

Since 2002, USAID has made 305 major awards to 149 different implementing partners to fund reconstruction activities in 

Afghanistan. As of September 30, 2011, USAID had disbursed $9.5 billion through these awards, which had a total estimated value 

of $15.2 billion. The awards included 136 contracts and task orders, 93 cooperative agreements, 53 grants, and 23 interagency 

agreements. The majority of USAID funding went to U.S. contractors, U.S. nonprofit organizations, and multilateral organizations. 

Ten implementing partners accounted for about 70 percent of total USAID funding. 

Based on SIGAR’s sample of 64 awards, SIGAR found that incurred cost audits of U.S.-based contractors were delayed due to a 

backlog of such audits caused by understaffing at the Defense Contract Audit Agency (DCAA) and lack of funding by USAID. As a 

result, nearly $1.1 billion disbursed by USAID since 2003 to the 13 U.S. contractors in our sample had not been audited by DCAA as 

of September 30, 2011. Annual audits of U.S.-based nonprofit organizations were conducted in accordance with Office of 

Management and Budget Circular A-133, but they often did not include specific USAID Afghanistan awards, thereby providing 

limited accountability over reconstruction funds. Annual financial audits of awards to multilateral organizations and other non-U.S. 

entities were often conducted. However, in some instances, these audits only partially met requirements or the results were not 

provided to USAID. Audit requirements for funds provided to other U.S. agencies were vague or, in many cases, audits were not 

required. 

Although the majority of USAID’s 305 major awards for Afghanistan reconstruction had been completed or had expired as of 

September 30, 2011, most had not been closed due, in part, to delays in conducting close-out audits, as required. Therefore, USAID 

lacked assurance over the use and disposition of its funds and property for completed or expired awards, and also delayed the 

potential recovery of $103 million in unliquidated obligations and $27.3 million in unpaid cost share, which are resources the 

implementing partner is responsible for providing. Finally, although as much as half of the funds that USAID provides for contracts, 

grants, and cooperative agreements may flow down to sub-recipients, USAID lacked transparency with regard to whether financial 

audits of sub-awards were being conducted, as required.

What SIGAR Recommends

To strengthen accountability over USAID funds provided to its implementing partners in Afghanistan, SIGAR recommends that the 

Administrator of USAID (1) provide the funding needed to increase the quantity and timeliness of incurred cost audits of U.S. 

contractors, (2) develop a system to identify and prioritize award-specific audits of U.S.-based nonprofit organizations, (3) expedite 

the use of close-out audits for expired awards with unexpended obligations and unpaid cost share, and (4) amend prime awards to 

include a requirement for a financial audit plan for sub-awards. When preparing the final report, SIGAR considered comments from 

USAID. Overall, USAID generally concurred with the recommendations and noted that it has taken some steps to address them. 

For more information contact: SIGAR Public Affairs at (703) 545-5974 or sigar.pentagon.ccr.mbx.public-affairs@mail.mil
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page i 

OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

April 30, 2012 

The Honorable Rajiv Shah 

Administrator, U.S. Agency for International Development 

Dr. S. Ken Yamashita 

USAID Mission Director to Afghanistan

This report discusses the results of the Office of the Special Inspector General for Afghanistan 

Reconstruction’s (SIGAR) audit of the U.S. Agency for International Development’s (USAID) financial

audit coverage of funds provided to contractors, grantees, and other recipients and implementing partners 

for reconstruction activities in Afghanistan. This report includes four recommendations to the 

Administrator of USAID to help strengthen the agency’s accountability over such funds. 

When preparing the final report, we considered comments from USAID. Overall, USAID concurred with 

our recommendations and noted that it has taken some steps to address them. These comments are 

reproduced in appendix III. We conducted this performance audit under the authority of Public Law No. 

110-181, as amended, the Inspector General Act of 1978, and the Inspector General Reform Act of 2008. 

Steven J Trent

Acting Special Inspector General for 

Afghanistan Reconstruction
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page ii 

TABLE OF CONTENTS 

Background .

Since 2002, USAID Has Disbursed Nearly $9.5 Billion under 305 Awards for 

Afghanistan Reconstruction ................................................................................................................... 4

........ 6

...... 21

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...... 26

...... 27

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.. 26

.. 18

.. 11

.... 7

.... 5

.... 4

.... 9

Financial Audits of Many USAID Implementing Partners Have Not Been Done, 

but Resources for Audits Were Limited .........................................................................................

Conclusions ...........................................................................................................................................

Recommendations .................................................................................................................................

Comments .............................................................................................................................................

Appendix I: Scope and Methodology ..................................................................................................

Appendix II: USAID Financial Audit Requirements Based on Type of 

Implementing Partner.....................................................................................................................

Appendix III: Comments from the U.S. Agency for International Development ................................

TABLES 

Table 1: Implementing Partners Receiving Largest Amounts of USAID 

Afghanistan Reconstruction Funds, as of September 30, 2011 (dollars in 

millions).

Table 2: Contracts, Grants, Task Orders, or Cooperative Agreements with U.S.-

based Contractors, as of September 30, 2011 (dollars in millions)

Table 3: Grants and Cooperative Agreements to U.S. Nonprofit Organizations, 

as of September 30, 2011 (dollars in millions)

Table 4: Grants to Multilateral Organizations, as of September 30, 2011 (dollars 

in millions) .....................................................................................................................................

Table 5: Grants to Afghan Government Entitites, as of September 30, 2011 

(dollars in millions) ........................................................................................................................

Table 6: Cooperative Agreements to Non U.S.-based Nonprofit Organizations, 

as of September 30, 2011 (dollars in millions) ...............................................................................

Table 7: Awards to Other U.S. Government Agencies, as of September 30, 2011 

(dollars in millions)

Table I: 64 Awards Selected for Audit Sample, as of September 30, 2011 

(dollars in millions) ........................................................................................................................

Table II: Financial Audit Requirements by Type of Implementing Partner........................................

FIGURES

Figure 1: USAID Disbursements under Major Awards for Afghanistan 

Reconstruction, by Type of Implementing Partner, as of September 30, 2011 ..................................

Figure 2: USAID Funding for DCAA Incurred Cost Audits, Fiscal Years 2009-

2011 (dollars in millions) ...................................................................................................................

........................................................................................................................

 ...............................................................................

................................................

.........................................................................................................................................

..........................................................................................................................................
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page iii 

ABBREVIATIONS AND ACRONYMS 

ADS Automated Directives System

ARTF Afghanistan Reconstruction Trust Fund

CAO Control and Audit Office

DCAA Defense Contract Audit Agency

FAR Federal Acquisition Regulation

OIG Office of Inspector General

OMB Office of Management and Budget

PAPA Participating Agency Program Agreement

PASA Participating Agency Service Agreement

SIGAR Special Inspector General for Afghanistan Reconstruction

UN United Nations

UNDP UN Development Program

USAID U.S. Agency for International Development
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 1 

USAID Has Disbursed $9.5 Billion for Reconstruction and Funded Some 

Financial Audits as Required, but Many Audits Face Significant Delays, 

Accountability Limitations, and Lack of Resources 

Since 2002, the U.S. Agency for International Development (USAID) has provided about $9.5 billion in 

Afghanistan reconstruction funds1

 to contractors, grantees, and other third-party entities (referred to 

collectively as implementing partners)2

 by means of 305 individual contracts, task orders, grants, 

cooperative agreements, and other funding mechanisms (referred to collectively as awards). USAID 

officials are responsible for providing reliable, useful, and timely information for transparency and 

accountability of the programs that are funded through these implementing partners. Financial audits 

provide independent, objective, nonpartisan assessments of the stewardship, performance, or cost of 

government policies, programs, or operations, depending on the type and scope of the audit.3

 Conducting 

financial audits is critical to help ensure that implementing partners have properly accounted for those 

funds and used them as intended. Achieving a high level of accountability over USAID funds for 

reconstruction efforts in Afghanistan is particularly important given that (a) the United States has 

significant national security interests in Afghanistan, a country which ranks among the most corrupt in the 

world, and (b) USAID has experienced a longstanding inability to adequately monitor program 

implementation due to security concerns.4

 

1

For purposes of this report, Afghanistan reconstruction includes any major contract, grant, agreement, or other 

funding mechanism entered into by USAID that involves the use of amounts appropriated or otherwise made 

available for the reconstruction of Afghanistan. Since fiscal year 2002, Congress has made funds available for 

Afghan reconstruction purposes to USAID through eight separate appropriations accounts, including the Economic 

Support Fund, Development Assistance, Child Survival and Health, and P.L. 480, Title II (food aid).

2

Implementing partners include recipients of contracts, cooperative agreements, grants, and interagency agreements. 

3

U.S. Government Accountability Office, Government Auditing Standards, Sections 1.01 and 1.02, GAO-07-731G, 

July 2007.

4

Since 2004, USAID/Afghanistan’s Federal Managers Financial Integrity Act self-assessment has identified the lack 

of project monitoring by designated USAID staff as a significant internal control deficiency.

We initiated this audit to determine the extent to which financial audits were being conducted of costs 

incurred under USAID-funded awards for Afghanistan reconstruction. Specifically, our objectives were 

to (1) identify the universe of awards that USAID has funded for Afghanistan reconstruction since 2002 

and (2) assess the extent to which financial audit requirements had been met for various types of 

implementing partners and awards, including expired awards and sub-awards. 

To identify the universe of awards, we obtained data from USAID regarding major awards issued 

between February 1, 2002 and September 30, 2011. We conducted data reliability tests to ensure the 

accuracy and completeness of that data. To determine the extent to which financial audits had been 

performed on those awards, we selected a random sample of 64 awards and reviewed applicable files to 

determine whether financial audits had been performed. As of September 30, 2011, USAID had 

disbursed almost $2.5 billion under these 64 awards (26 percent of disbursements for all 305 major 

awards5

).

5

USAID’s Mission for Afghanistan defines “major” awards as all contracts, grants, cooperative agreements, and 

interagency agreements over $100,000, and excludes personal services contracts.

 We also reviewed relevant laws, regulations, policies, standard operating procedures, and other 

guidance relating to financial audits of USAID implementing partners, and interviewed USAID officials 

in Washington, D.C., and Kabul, Afghanistan, including contracting and assistance officers responsible 

 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 2 

for contracts and grant agreements, as well as their technical representatives. In addition, we met with 

USAID financial management personnel and officials of USAID’s Office of Inspector General (OIG) 

based in Washington, D.C., and Kabul, Afghanistan. We conducted our work in Kabul, Afghanistan, and 

Washington, D.C., from March 2011 to March 2012 in accordance with generally accepted government 

auditing standards. A more detailed discussion of our scope and methodology is included in appendix I. 

BACKGROUND

USAID has disbursed billions of dollars as part of the larger U.S. government and international effort to 

help the Afghan government secure and rebuild its country following the removal of the Taliban regime 

by coalition troops after the September 11, 2001, terrorist attacks in the United States. USAID’s 

assistance programs in Afghanistan have focused on areas such as health, education, economic growth, 

agriculture, infrastructure, and governance to help stabilize the country and build the Afghan 

government’s capacity to provide services and security for its citizens. The majority of USAID assistance 

to Afghanistan has been provided through various implementing partners by means of contracts, task 

orders, grants, cooperative agreements, and other funding mechanisms. According to USAID records, 

between February 1, 2002, and September 30, 2011, the agency made 305 major awards with a total 

estimated value of $15.2 billion, of which $10.4 billion had been obligated and $9.5 billion disbursed as 

of September 30, 2011. The majority of these awards were overseen by technical program offices at 

USAID’s Mission in Kabul.

Financial audits of contracts and grants help USAID and other stakeholders assess whether implementing 

partners have accounted for and used USAID funds as intended. Specifically, in addition to rendering an 

opinion as to whether an implementing partner’s financial information is fairly presented, financial audits 

also evaluate a recipient's internal controls to identify material weaknesses and perform tests to determine 

whether a recipient complied with applicable laws and regulations. Financial audits may also be used to 

help finalize indirect cost rates, close out awards, settle termination claims, and review compliance with 

cost-sharing agreements. In addition, financial audits of recipients often result in savings to the U.S. 

government by identifying costs that may be disallowed and recovered because they do not comply with 

the terms of an award, lack adequate supporting documentation, are not allocable to a specific program, or 

are deemed unreasonable. Less measureable are the potential savings that may accrue due to the deterrent 

effect that a financial audit program has on implementing partners who may otherwise be more inclined to 

misuse USAID funds. 

Chapter 591 of USAID’s Automated Directives System (ADS) describes the agency’s policies and 

procedures pertaining to financial audits of implementing partners.6

6

ADS is USAID's directives management program. Agency policy directives, required procedures, and helpful, 

optional material are drafted, cleared, and issued through ADS. Agency employees must adhere to these policy 

directives and required procedures.

 ADS 591 lists the primary 

responsibilities of individuals and offices at USAID headquarters and field missions with regard to 

determining which awards should be audited and ensuring that required financial audits are conducted. 

According to ADS 591, awards issued by USAID may be subject to a variety of financial audit 

requirements depending on the type of implementing partner, type of award, whether the implementing 

partner is based in the U.S. or another country, the amount of Federal funding received, and the status of 

the award (see appendix II). Generally, for-profit companies are subject to annual incurred cost audits by 

the Defense Contract Audit Agency (DCAA), and non-profit organizations with funding levels above 

designated thresholds are required to contract with private audit firms to conduct annual financial audits. 

USAID may also opt to have additional audits performed by contracting directly with independent audit 

firms. Funds provided under USAID awards may also require other financial audits depending on the 

status and circumstances of the award. For example, awards that expire as planned, or are terminated 

early, normally require a “close-out” or termination audit to help determine final indirect cost rates and 

evaluate the provision of agreed-upon cost-sharing. In addition, most USAID awards require the primary 

 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 3 

implementing partner to “pass down” financial audit requirements in awards to sub-partners and ensure 

that costs incurred under sub-awards are audited. 

USAID generally funds annual financial audits of U.S. contractors from its separately appropriated 

operating expense account. For other recipients, USAID often allows the use of program funds to 

cover audit costs. The costs of such audits are often included as line items in the budgets of programfunded grants and cooperative agreements. Also, USAID policy specifically states that the agency may 

perform audits of host government recipients and sub-recipients using program funds. 

Among other duties, USAID’s OIG is responsible for ensuring that financial audits of USAID 

implementing partners are conducted in accordance with appropriate standards. Generally, only audit 

organizations, which the OIG has determined to be eligible, may perform financial audits of USAID's 

partners. These organizations may include independent audit firms contracted by grantees, public 

accounting firms under contract to USAID, Federal audit agencies such as DCAA, host country supreme 

audit institutions, or the OIG. As of March 2011, the OIG had approved 12 independent firms to conduct 

financial audits of USAID implementing partners in Afghanistan. 

To fulfill its oversight responsibilities, the OIG is required to review all financial audit reports of USAID 

implementing partners. Additionally, the OIG is to conduct quality control reviews of selected financial 

audits to ensure that they were performed in accordance with applicable standards. The OIG transmits 

award-specific audit reports it reviews to USAID management, along with related audit recommendations 

which the OIG tracks and reports on semiannually to the U.S. Congress. As of September 30, 2011, the 

OIG reported transmitting a total of 39 such audit reports covering $857 million in USAID funds 

expended under Afghanistan reconstruction awards through 12 different awards. According to OIG 

records, those audit reports included a total of $114 million in costs that were questioned by the financial 

auditors. USAID contracting and assistance officers sustained, or agreed to recover, about $99.7 million 

of those questioned costs. In addition, the OIG reviews organization-wide financial audits of U.S.-based 

contractors conducted by DCAA and U.S.-based nonprofit organizations conducted by private audit 

firms.

Last year, USAID took steps to increase the coverage of its financial audit program for implementing 

partners working on Afghanistan reconstruction activities. In April 2011, the Director of USAID’s Kabul 

Mission signed an action memorandum initiating a program to audit all locally incurred costs by programfunded implementing partners to improve USAID’s ability to ensure that its funds are properly accounted 

for and spent in accordance with applicable laws, regulations, and policies. The memorandum indicated 

that a more robust financial audit program would become a cornerstone of the USAID Administrator’s 

Accountable Assistance for Afghanistan (A3) initiative, designed to address the concern that Afghanistan 

is a difficult operating environment which poses significant challenges to executing proper financial 

controls. In particular, the memorandum stated that the goal of the new initiative was to limit the 

likelihood that USAID assistance would directly or inadvertently support terrorist groups or be diverted 

from its development purpose by extortion or corruption. However, the new audit program has not been 

fully implemented and will need time to recruit and train qualified staff, develop the capacity of local 

audit firms, and obtain necessary funding. 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 4 

SINCE 2002, USAID HAS DISBURSED NEARLY $9.5 BILLION UNDER 305 AWARDS 

FOR AFGHANISTAN RECONSTRUCTION

USAID records indicate that it issued a total of 305 major awards to 149 different implementing partners 

between February 2002 and September 2011 to fund reconstruction activities in Afghanistan and 

disbursed $9.5 billion under these awards.7

 The 305 awards included 136 contracts and task orders, 93 

cooperative agreements, 53 grants, and 23 interagency agreements to fund other U.S. government 

agencies. As of September 2011, 100 of these awards were ongoing, while 205 had expired. Most 

awards were managed by technical program offices within USAID’s Kabul Mission.8

 

As of September 30, 2011, almost three fourths of these disbursements had gone to U.S. implementing 

partners and recipients, such as for-profit contractors, nonprofit organizations, and other government 

agencies. Nearly one-fourth of the funding went to multilateral organizations, such as the World Bank 

and United Nations (UN) agencies. Only about 3 percent went to foreign implementing partners and 

recipients, including the Afghanistan government. Figure 1 shows the percentage of USAID funds 

provided to each type of implementing partner. 

Figure 1: USAID Disbursements under Major Awards for Afghanistan Reconstruction, by 

Type of Implementing Partner, as of September 30, 2011

Source: SIGAR analysis of USAID data. 

Although USAID has issued major awards for Afghanistan reconstruction to 149 different implementing 

partners and recipients since 2002, as of September 30, 2011, 10 implementing partners accounted for 

about 70 percent of USAID funding for those awards (see table 1). 

Other U.S. 

agencies, 

1.3%

U.S. nonprofit 

organizations, Afghan government 

22.4% entities, 1.0%

U.S. for-profit Other, 2.9% Foreign for-profit companies, 50.4% companies, 1.7%

Multilateral Foreign nonprofit organizations, organizations, 0.3% 22.9%

 

7

The total award value as of September 30, 2011, was $15.2 billion; of that amount, $10.4 billion had been 

obligated.

8

USAID’s technical program offices in Kabul include the Offices of Agriculture, Democracy and Governance, 

Economic Growth, Social Sector Development (Education and Health), Infrastructure Energy and Engineering, 

Program and Project Development, and the Stabilization Unit. In addition, five administrative awards, including a 

$361 million contract for chartered air service, were managed by the Mission’s Executive Office.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 5 

Table 1: Implementing Partners Receiving Largest Amounts of USAID

Reconstruction Funds, as of September 30, 2011 (dollars in millions)

Afghanistan 

Implementing partner

Type of 

implementing 

partner

Type of 

award(s)

Total 

estimated 

value

Total 

obligated 

Total 

disbursed 

Louis Berger Group, Inc./Black & Veatch U.S. contractor Contracts $2,076 $1,814 $1,664

World Bank Multilateral 

organization Grant $2,079 $1,072 $972

International Relief and Development, Inc.

U.S. nonprofit 

organization

Contracts and 

cooperative 

agreements

$1,307 $932 $844

United Nations agencies

Multilateral 

organization

Grants and 

cooperative 

agreements

$841 $811 $786

Development Alternatives, Inc. U.S. contractor

Contracts and 

cooperative 

agreement

$1,396 $836 $719

Chemonics International, Inc. U.S. contractor

Contracts and 

cooperative 

agreement

$972 $692 $599

Deloitte Consulting U.S. contractor Contracts $330 $286 $272

Creative Associates International, Inc. U.S. contractor

Contracts and 

cooperative 

agreements

$270 $268 $244

International Organization for Migration Multilateral 

organization

Cooperative 

agreements $282 $277 $239

Tetra Tech/ Associates in Rural 

Development, Inc. U.S. contractor Contracts $516 $293 $232

Total $10,071 $7,282 $6,571

Source: SIGAR analysis of USAID data.

Note: Totals affected by rounding.

The U.S. contractors receiving the largest amount of USAID funding for Afghanistan have been Louis 

Berger Group, Inc., and Black & Veatch, which received about $1,664 million since 2002. This amount 

includes $701 million received between 2002 and 2007 under a contract to Louis Berger Group, Inc., to 

provide rehabilitation of economic facilities and services. In addition, Louis Berger Group, Inc., is a 

major participant in a joint venture with Black & Veatch. The joint venture received $942.5 million 

between 2006 and 2011 under an indefinite quantity contract with 27 separate construction task orders. 

Black & Veatch also received $20.6 million under another contract. The U.S. nonprofit organization 

receiving the largest amount of USAID funding for Afghanistan reconstruction has been International 

Relief and Development, Inc., which has received $844 million since 2004 through five cooperative 

agreements and three contracts. The multilateral organization receiving the largest amount of funding has 

been the World Bank, through which USAID disbursed $972 million to the Afghanistan Reconstruction 

Trust Fund (ARTF).9

9

ARTF was established in 2002 to provide a vehicle for international donors to pool resources and coordinate their 

support for the reconstruction of Afghanistan. Donor contributions enable the ARTF to finance both the operating 

costs of the Afghan government and key national development programs under the Afghan National Development 

Strategy. 

USAID also provided a total of $786 million to various UN entities (principally the 

 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 6 

UN Development Program and UN Office of Project Services) through 21 grants and 5 cooperative 

agreements.

FINANCIAL AUDITS OF MANY USAID IMPLEMENTING PARTNERS HAVE NOT 

BEEN DONE, BUT RESOURCES FOR AUDITS WERE LIMITED

Financial audits of costs incurred for Afghanistan reconstruction by some USAID-funded implementing 

partners were significantly delayed; not always conducted, as required; or provided limited assurance that 

funds disbursed under USAID awards to those implementing partners were properly used and accounted 

for. Specifically, annual incurred cost audits of U.S.-based contractors—the largest category of

implementing partners of USAID funds for Afghanistan—were years behind schedule because DCAA 

lacked the staff to complete timely audits, and USAID budgeted only a small portion of the funds required 

for DCAA audits. In addition, annual audits of U.S.-based nonprofit organizations, although conducted 

as required, may not include specific USAID awards in Afghanistan, thereby providing limited 

accountability over USAID funds expended for reconstruction. Annual audits of USAID funds provided 

to most other entities were conducted, although a number of these audits only partially met requirements, 

audit requirements were sometimes vague or not applicable, or the results were not always provided to 

USAID as requested. Further, most expired awards were not closed out due, in part, to delays in 

conducting close-out audits. As a result, USAID lacked assurance as to the use and disposition of funds 

and property under expired awards and delayed potential recovery of $103 million in unliquidated 

obligations and $27.3 million in unpaid cost share—resources the implementing partner is responsible for 

providing. In addition, although as much as half of the funds that USAID provides for contracts, grants, 

and cooperative agreements may flow down to sub-recipients, USAID lacked transparency with regard to

whether financial audits of sub-awards were being conducted, as required. 

Incurred Cost Audits of U.S.-based Contractors Were Significantly Delayed due to Audit 

Backlog and Lack of Resources 

The Federal Acquisition Regulation (FAR) designates DCAA as the U.S. government audit agency for 

contractors other than educational institutions and nonprofit organizations and requires DCAA to 

perform audits of costs incurred by contractors to determine the acceptability of these costs.

10 

Accordingly, USAID policy states that DCAA will normally audit U.S. for-profit firms for which USAID 

is the cognizant or principal funding agency.11 Per USAID’s policy, the Bureau for Management, Office 

of Acquisition and Assistance, Contract Audit and Support Division must assess risks associated with 

all USAID-funded U.S. contractors at least annually to determine if they should be audited. Per the 

FAR, U.S. contractors must provide annual incurred cost submissions within 6 months after the end 

of the company’s fiscal year.12 Incurred cost audits include an evaluation of both direct and indirect 

costs, with the objective of determining whether the costs are reasonable, allocable, and allowable. 

USAID policy indicates that if DCAA cannot be responsive to USAID’s needs for an audit, a nonFederal public accountant may be used to perform the audit. DCAA’s contract audit manual describes 

timeliness as a characteristic of quality audit reports.13 According to the manual, audit reports must be 

timely to be useful. DCAA has established a standard performance goal of completing corporate incurred 

cost audits within 12 months. Consequently, incurred cost audits would ideally be completed 18 months 

after the end of a contractor’s fiscal year.

 

10See FAR 42.101. Also, DCAA guidance for contractors indicates that DCAA can audit both Department of 

Defense contractors and non-Defense contractors. Non-Defense contractors are audited on a reimbursable basis and 

only upon request by the cognizant agency. 11ADS 591.3.1.2.

12FAR 52.216-7.

13DCAA Contract Audit Manual, section 10-103.1.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 7 

Our sample of 64 awards included 21 contracts, task orders, or cooperative agreements issued between 

fiscal years 2002 and 2011 that are subject to incurred cost audits. None had been done. Table 2 shows 

the amount of USAID funding provided to each of the U.S. contractors in our sample. 

Table 2: Contracts, Grants, Task Orders, or Cooperative Agreements with U.S.-

based Contractors, as of September 30, 2011 (dollars in millions)

U.S.-based contractor Total 

estimated 

value

Total 

obligated

Total 

disbursed

Development Alternatives, Inc. $751.7 $469.8 $437.3

Louis Berger Group, Inc./Black & Veatch Joint Venture $218.2 $211.8 $201.5

Central Asia Development Group, Inc. $216.5 $216.5 $195.9

Emerging Markets Group $56.3 $55.9 $55.6

Chemonics International, Inc. $66.7 $48.7 $36.9

Checchi & Company $41.3 $39.3 $31.5

AECOM $34.5 $31.0 $27.0

Creative Associates International, Inc. $38.9 $36.3 $26.8

Associates in Rural Development $51.9 $28.3 $24.4

Advanced Engineering Associates, International $18.7 $18.7 $17.6

DPK Consulting $33.8 $23.6 $17.3

International Resources Group $33.0 $23.5 $16.2

Global Strategies Group $7.0 $7.0 $7.0

Total $1,568.5 $1,210.3 $1,094.9

Source: SIGAR analysis of USAID data.

Note: Totals affected by rounding.

None of the 21 awards in our sample had expenditures that were audited under USAID’s memorandum of 

understanding with DCAA. According to USAID and DCAA records, the last incurred cost audit for 

each contractor in our sample was completed, on average, about 4 years after the period audited. For two 

contractors, the last incurred cost audit was completed 7 years after the period audited. Consequently, 

nearly $1.1 billion disbursed by USAID to the 13 U.S. contractors in our sample had not been subjected 

to a DCAA incurred cost audit as of September 30, 2011. For example:

• Development Alternatives, Inc., had four contracts through which USAID had disbursed a total of 

$437.3 million during the period 2005-2011. The most recent incurred cost audit for this 

contractor was issued by DCAA in October 2002 for costs incurred during 1998. In 2006, 

USAID requested that DCAA conduct incurred cost audits of Development Alternatives, Inc., for 

1999, 2000, and 2001. The requested due date was July 31, 2010, but the audits had not been 

completed as of September 30, 2011. 

• Since 2006, USAID has disbursed a total of $942.5 million under a contract for a joint venture 

between Louis Berger Group, Inc., and Black & Veatch.14

14The joint venture contract included 27 individual task orders as of September 30, 2011. USAID disbursed a total 

of $942.5 million under all 27 task orders, of which $201.5 million was for the 5 task orders included in our sample.

The most recent incurred cost audit 

for Louis Berger Group, Inc., issued by DCAA in September 2005, was for 2000. The most 

 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 8 

recent incurred cost audit for Black & Veatch, issued by DCAA in September 2011, was for 

2004. No incurred cost audits have been conducted for the joint venture.15 

•

•

•

A March 2009 award to the Central Asia Development Group, Inc., through which USAID 

disbursed $195.9 million, ended in November 2011 but had not been scheduled for an audit as of 

September 30, 2011. USAID did not schedule a DCAA audit for this contractor because it 

considered the company to be based outside the United States. Although the contractor’s 

headquarters and administrative offices are located in Singapore, it was incorporated in Maryland 

and has an office in Baltimore. Adding to the confusion was that the cooperative agreement 

incorporated standard provisions that required the contractor to submit annual audits in 

accordance with Office of Management and Budget (OMB) Circular A-133—a requirement that 

did not apply because the contractor was not a nonprofit organization. The agreement did not 

require that the contractor provide USAID with an incurred cost submission which would have 

triggered a request for a DCAA audit. Consequently, USAID officials did not arrange for the 

contractor to be audited. 

The most recent DCAA incurred cost audit for Emerging Markets Group, which received 

$55.6 million under a USAID contract during the period 2005-2011, was for 2001. That audit 

report was not issued until September 2008, more than 7 years after the period audited. Delays in 

performing financial audits may increase the difficulty of locating the documentation necessary to 

conduct those audits and postpone the identification and correction of internal control weaknesses 

and instances of noncompliance. Early communication of audit findings to those charged with 

governance or management may be important because of the relative significance and the 

urgency for corrective follow-up action. Delayed audits could also affect the potential recovery 

of unallowable costs identified through the audit process. 

The most recent incurred cost audit for Chemonics International, Inc., which had two awards in 

our sample through which USAID disbursed $36.9 million between 2003 and 2011, was for 2002. 

That audit was not completed by DCAA until 2006, 4 years after the period audited. 

Lack of Staff and Funding Contribute to DCAA Audit Backlog and Delays 

One factor that limited the timeliness of incurred cost audits of USAID contractors was DCAA’s backlog 

of requested audits caused, in part, by lack of staff and resources. Although DCAA has a standard 

performance goal of completing incurred cost audits within 12 months, the agency accomplished this goal 

for only 10 percent of its audits during fiscal year 2010. In September 2010 testimony before the 

Commission on Wartime Contracting in Iraq and Afghanistan, DCAA’s director stated that the agency 

did not have the necessary staff to perform all the work it was asked to carry out.16 The Commission’s 

final report to Congress in August 2011 stated that DCAA had accumulated a backlog of billions of 

dollars of unaudited contingency-contract costs. According to that report, the unaudited backlog 

totaled $558 billion, having risen from $406 billion in only 9 months. The Commission 

recommended, among other things, that Congress increase DCAA’s staff and resources to improve 

that agency’s ability to perform incurred cost audits.17 

 

15Some USAID funds provided under the contract with the Louis Berger Group Inc./Black & Veatch Joint Venture

were audited, but not through USAID’s memorandum of understanding with DCAA. Instead, USAID’s Kabul 

Mission contracted with KPMG Afghanistan, Ltd., to conduct financial audits of costs incurred in Afghanistan under 

the joint venture contract. As of September 30, 2011, KPMG had issued three reports for fiscal years 2007-2009 

covering $18.6 million in local costs, of which $2.4 million was questioned. 16Testimony of Patrick J. Fitzgerald, Director, Defense Contract Audit Agency, before the Commission on Wartime 

Contracting in Iraq and Afghanistan, The Contingency Acquisition Workforce: What Is Needed and How Do We Get 

There?, September 16, 2010. 17Commission on Wartime Contracting in Iraq and Afghanistan’s Final Report to Congress, Transforming Wartime 

Contracting: Controlling Costs, Reducing Risks, August 2011.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 9 

Incurred cost audits of USAID contractors have not been requested in a timely manner because of 

insufficient funding on the part of USAID. According to USAID’s Contract and Audit Support Division, 

its budget for financing incurred cost audits by DCAA met less than 20 percent of the agency’s needs to 

fund those audits during the last 3 fiscal years. Although USAID estimated that incurred cost audits 

would require a total of $26 million during fiscal years 2009-2011, the agency budgeted only $4.4 million 

(about 17 percent) for that purpose. Consequently, the Contract and Audit Support Division had to 

prioritize a few contractor audits to request from DCAA and postpone the remainder. Figure 2 shows the 

extent of USAID’s budget shortfall for funding DCAA incurred cost audits during fiscal years 2009-2011. 

Figure 2: USAID Funding for DCAA Incurred Cost Audits, 

Fiscal Years 2009-2011 (dollars in millions)

Source: SIGAR analysis of USAID data. 

a

The amount received for 2011 through the agency’s normal budgeting process was 

$1 million. A one-time re-allocation of $1.7 million due to savings from another 

cost category brought the total received for 2011 to $2.7 million.

$12.0

$10.0

$8.0

$6.0

$4.0

$2.0

$0.0

$10.8

$8.9

$6.3

$2.7

$0.8 $1.0

2009 2010 2011

Amount required to fund contractor audits

Amount budgeted by USAID for that purpose

a (millions)

According to USAID’s Contract and Audit Support Division, funds for DCAA audits were limited 

because they were allocated from USAID’s operating expense appropriation rather than its program 

appropriations.18 USAID’s operating expenses are typically about 10 percent of its program funds and 

provide funding primarily for salaries of USAID employees. Agency policy requires that operating 

expense funding be used to provide for the cost of doing business—defined as general activities required 

or expected to be performed by any Federal agency irrespective of its mandate/program.19 According to 

that policy, all costs not specifically and directly relating to identified projects are mandated to be funded 

from the operating expense account. USAID budget officials at USAID headquarters considered DCAA 

audits to be an operating expense. 

 

18

Since 1976, USAID has received an annual appropriation for operating expenses in addition to separate 

appropriations for its program funds. See GAO 03-1152R, USAID’s Operating Expense Account Does Not Fully 

Reflect the Cost of Delivering Foreign Assistance, September 30, 2003. 9

ADS Chapter 601. 1
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 10

However, incurred cost audits performed by DCAA cover USAID funds that, for the most part, can be 

directly tied to specific programs. According to DCAA’s guidance for contractors, both direct and 

indirect costs should be accumulated by contract to determine their allowability. Further, financial audits 

contracted by USAID missions are typically paid from program funds. 

OMB Circular A-133 Audits Conducted as Required but Provided Limited Assurance That 

Funds to Some U.S. Nonprofit Organizations Were Used as Intended for Specific Awards

According to USAID policy, awards to U.S. nonprofit organizations must include provisions requiring 

them to contract with an independent, non-Federal auditor to perform an annual financial audit in 

accordance with OMB Circular A-133 if they expend $500,000 or more in Federal funds within their 

fiscal year.20 OMB Circular A-133 audits must be conducted in accordance with auditing standards 

approved by the Comptroller General of the United States and should include an examination of an 

implementing partner’s financial records, financial statements, general management of its operations, 

internal control systems, and expenditures of Federal assistance received during the audit period. They 

are typically performed by an independent certified public accountant and encompass both financial and 

compliance components. Per USAID policy, U.S.-based nonprofit organizations required to have an 

OMB Circular A-133 audit performed must submit a copy of the audit report, along with a standard data 

collection form, to a Federal Audit Clearinghouse within 9 months of the end of the period audited. The 

audit must cover expenditures made by the entire organization unless the auditee expends Federal awards 

under only one Federal program. In that case, the auditee may elect to have a program-specific audit 

conducted in accordance with OMB Circular A-133. 

Single audit reports done in accordance with OMB Circular A-133 are not intended to provide detailed 

audit coverage of all the Federal awards or provide detailed financial information for individual awards. 

While expenditures under a specific USAID award might be reviewed during an OMB Circular A-133 

audit, the likelihood depends to a large extent on the amount of funding received under that award relative 

to total Federal funding received. According to OMB Circular A-133, audit firms conducting annual 

audits in compliance with that circular are required to identify each Federal award and determine whether 

that award constitutes a major program.21 Major programs are to receive more audit scrutiny than nonmajor programs. 

Our sample of 64 awards included 21 grants and cooperative agreements issued between 2002 and 2011 

through which USAID had disbursed more than $168 million to 19 U.S.-based nonprofit organizations as 

of September 30, 2011 (see table 3). All 19 U.S. nonprofit organizations in our sample had completed 

and filed their annual OMB Circular A-133 audit reports, as required. 

 

20ADS 591.3.1.1.

21According to OMB Circular A-133, auditors should use a risk-based approach to determine which Federal 

programs are major programs. The risk-based approach should include consideration of current and prior audit 

experience, oversight by Federal agencies, and inherent risk.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 11

Table 3: Grants and Cooperative Agreements to U.S. Nonprofit Organizations, as 

of September 30, 2011 (dollars in millions)

U.S. nonprofit organization Total 

estimated 

value

Total 

obligated

Total 

disbursed

Consortium For Elections and Political Process 

Strengthening $35.1 $35.1 $34.9

International Fertilizer Development Center $32.5 $32.5 $32.5

The Asia Foundation $20.1 $20.1 $19.9

New Mexico State University $16.1 $16.1 $16.1

Volunteers for Economic Growth Alliance $15.0 $9.2 $9.0

Counterpart International, Inc. $45.0 $12.3 $8.0

Internews Network, Inc. $7.9 $7.9 $7.9

University of Nebraska $7.7 $7.7 $7.7

University of California-Davis $6.8 $6.8 $5.1

CARE International $4.8 $4.8 $4.8

Small Enterprise Assistance Funds $10.0 $4.0 $4.0

Wildlife Conservation Society $8.0 $6.0 $3.5

Voice For Humanity $3.0 $3.0 $3.0

Mercy Corps $2.9 $2.7 $2.7

Cornell International

Development 

Institute for Food, Agriculture and $2.5 $2.5 $2.4

Arzu, Inc. $2.3 $2.3 $2.3

International Foundation of Hope $4.0 $2.0 $2.0

Management Sciences for Health $2.0 $2.0 $2.0

Catholic Relief Services $.5 $.4 $.4

Total $226.2 $177.4 $168.2

Source: SIGAR analysis of USAID data.

Note: Totals affected by rounding.

Accountability Limitations of OMB Circular A-133 Audits for U.S. Nonprofit Organizations 

Disbursements by USAID under the 21 grants and cooperative agreements in our sample constituted a 

relatively small percentage of total Federal funding provided to the respective nonprofit organization. 

Consequently, the awards were seldom considered major programs by the auditors conducting the 

organizations’ OMB Circular A-133 audits, and auditors would have applied few if any tests toward 

auditing expenditures under those USAID awards. A comparison of expenditures under the 21 USAID 

awards in our sample to expenditures of all Federal funding sources for the 19 organizations during the 

same period revealed that total expenditures under the 21 awards constituted less than one percent of total 

Federal funds expended by those same organizations. For example: 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 12

•

•

•

•

•

The Consortium for Elections and Political Process Strengthening expended $22 million during fiscal 

years 2003-2006 under a USAID cooperative agreement. During that same period, the organization 

expended a total of $376 million in Federal funding. The amount expended for the USAID award 

made up less than six percent of the organization’s total Federal funding for that year. 

The Asia Foundation expended about $1.4 million during fiscal year 2009 under a USAID grant. 

During that same year, the organization expended a total of $53 million in Federal funding. The 

amount expended under the USAID grant made up less than three percent of the organization’s total 

Federal funding for that year. 

New Mexico State University expended $16.1 million during fiscal years 2008-2011 under a USAID 

cooperative agreement.22 During those same years, the organization expended a total of $1.1 billion 

in Federal funding. The amount expended under the USAID award made up about one and a half 

percent of the organization’s total Federal funding for the same period. 

CARE International expended $614,594 during fiscal years 2004-2005 under a USAID grant. During 

that same period, the organization expended a total of $443 million in Federal funding. The amount 

expended under the USAID grant made up just over one-tenth of one percent of the organization’s 

total Federal funding for those years. 

The Cornell International Institute for Food, Agriculture and Development expended $2.4 million 

during fiscal years 2007-2010 under a USAID cooperative agreement. During those same years, the 

organization expended a total of $2.4 billion in Federal funding. The amount expended under the 

USAID award made up one-tenth of one percent of the organization’s total Federal funding for the 

same period. 

USAID policy states that financial audits performed in accordance with OMB Circular A-133 do not limit 

the authority of USAID or the OIG to conduct or arrange for additional audits, reviews, and evaluations.23 

Similarly, OMB Circular A-133 states that its provisions neither limit the authority of Federal agencies to 

conduct or arrange for additional audits (e.g., financial audits, performance audits, evaluations, 

inspections, or reviews) nor authorize any audited organization to constrain Federal agencies from 

carrying out additional audits.24 However, the circular allows Federal agencies to request an auditee to 

have a particular Federal program audited as a major program in lieu of the agency conducting or 

arranging for an additional audit.25

Although agreements for all 21 sampled awards included audit rights allowing USAID, or any duly 

authorized representative, to have timely and unrestricted access to the organization’s financial records to 

conduct an audit, USAID did not exercise those rights to obtain award-specific financial audits. Nor did 

USAID request that any of the sampled awards be included in an OMB Circular A-133 audit as a major 

program in lieu of conducting or arranging for an award-specific audit. As a result, more than $2 billion 

in total USAID disbursements to U.S. nonprofit organizations were not subjected to audits of awards 

made specifically for Afghanistan reconstruction. 

 

22An award-specific financial audit of USAID’s cooperative agreement with New Mexico State University was 

conducted by a private audit firm. The audit covered $10.5 million in total costs for the period March 3, 2008, 

through September 30, 2010. The auditors questioned costs totaling $728,257. No costs under this award were 

questioned by the A-133 auditors who covered the same period of expenditures. 23ADS 591.3.1.1.

24OMB Circular A-133, Subpart A, Section 215(a).

25OMB Circular A-133, Subpart A, Section 215(c). 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 13

USAID Relies on Multilateral Organizations to Audit Awards 

USAID does not normally arrange for financial audits of funds provided multilateral organizations. 

Instead, USAID generally relies on the organizations’ own audit policies and procedures. However, 

USAID policy requires that each organization receiving USAID funds (1) confirm that its program will 

be subject to an independent audit in accordance with its usual auditing procedures and (2) agree to 

make audit reports available to USAID, along with other related information as may be reasonably 

requested with respect to questions arising from the reports.26 

Our sample included two awards issued between 2002 and 2006 through which USAID had disbursed a 

total of $977.6 million to two multilateral organizations as of September 30, 2011. Table 4 shows the 

amount of USAID funding provided under the two awards.

Table 4: Grants to Multilateral Organizations,

millions)

as of September 30, 2011 (dollars in

Multilateral organization Total

estimated

value

Total

obligated

Total

disbursed

World Bank $2,079.5 $1,072.0 $972.0

UN Development Program $6.0 $5.6 $5.6

Total $2,085.5 $1,077.6 $977.6

Source: SIGAR analysis of USAID data.

One award is a grant agreement with the World Bank through which USAID makes contributions on 

behalf of the U.S. government to ARTF. With expected U.S. contributions of more than $2 billion over 

the life of the fund, the ARTF grant constitutes one of USAID’s largest awards for Afghanistan 

reconstruction. As of September 30, 2011, USAID had disbursed $972.0 million to the fund. 

USAID’s grant agreement with the World Bank states that the World Bank would require the Afghan 

government to audit ARTF funds annually and submit related audit reports to the World Bank within 

6 months of the end of the fiscal year audited. Although the agreement does not require the World Bank 

to provide USAID with copies of those audit reports upon request, as required by USAID policy, the 

Mission has obtained audit reports of ARTF funds conducted by the Afghan government’s Control and 

Audit Office (CAO). As Afghanistan’s supreme audit institution, CAO is responsible for auditing the 

records and accounts of all ARTF expenditures, with technical assistance from the international auditing 

firm PKF International. In conducting these audits, CAO examines whether Afghan government 

expenditures are eligible for ARTF funding. According to its agreement with the World Bank, the 

Afghan government must reimburse ineligible ARTF expenditures to the trust fund. As noted in our prior 

audit report on ARTF, although CAO audits have identified millions of dollars in ineligible expenditures, 

the findings resulted in a substitution of the ineligible expenditures for an equal amount of eligible 

expenditures, rather than the Afghan government reimbursing the funds to ARTF.27 Further, although 

 

26See Sections 9 and 10 of USAID’s Standard Provisions for Cost-type Awards to Public International 

Organizations, a mandatory reference for ADS Chapter 308. 27SIGAR Audit-11-14, The World Bank and the Afghan Government Have Established Mechanisms to Monitor and 

Account for Funds Contributed to the Afghanistan Reconstruction Trust Fund, but Some Limitations and Challenges 

Should Be Addressed (July 22, 2011).
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 14

CAO is responsible for auditing one of USAID’s largest awards, we have called CAO's lack of 

organizational, external, and personal independence into question.28

The second award is a grant agreement valued at $5.6 million with the UN Development Program 

(UNDP), valued at $5.6 million. It was made in March 2006 and ended in December 2008. USAID did 

not have financial audits conducted of this award because the grant agreement did not require it. Instead, 

the grant agreement included a confirmation by UNDP that the award would be audited by applying 

established procedures under appropriate provisions of the financial regulations and rules of the United 

Nations. However, the USAID official responsible for monitoring the award did not know whether 

UNDP had audited the award. Although USAID is entitled to access audit reports issued by a UN 

internal oversight entity, the USAID official indicated that USAID had neither requested nor received an 

audit report for this award. The USAID official subsequently requested a copy of audits of the award 

from UNDP, but received no response. 

Most Awards to Foreign Entities Were Conducted as Required 

USAID also awarded funds to several Afghan government entities and other non-U.S.-based 

implementing partners to carry out reconstruction-related activities. Of the three grants to Afghan 

government entities, one audit was conducted as required but did not cover the last 6 months of the award, 

no funds were disbursed under the second—and largest—award, and the third award was not audited in 

accordance with USAID requirements because officials refused access to records. Awards to non-U.S 

nonprofit organizations were conducted as required, and audits of non-U.S. for-profit companies were not 

required because these awards were fixed-price contracts, which do not require annual financial audits.

Funds Awarded to Afghan Government Entities Generally Met Audit Requirements, Although One Entity 

Refused Audit Firm’s Access to Its Records

USAID typically awards funds to host government entities through bilateral grants documented by 

implementation letters pursuant to Strategic Objective Grant Agreements signed by USAID and host 

country officials.29 Such agreements include standard provisions requiring the host government to 

maintain records pertaining to grant funds in accordance with established accounting principles. 

According to USAID policy, financial audit requirements for awards to host government entities are 

similar to those for non-U.S.-based nonprofit organizations; the awards are subject to USAID’s 

Guidelines for Financial Audits Contracted by Foreign Recipients (Guidelines).

30 The principal 

difference is that host government entities may have audits performed by its supreme audit institution, 

instead of by private audit firms. These government audit institutions may audit USAID funds provided 

to host government entities only with OIG approval. As noted previously, the Afghan government’s 

CAO serves as its supreme audit institution but had not been approved by USAID’s OIG to conduct 

audits of USAID-provided funds at the time of our audit. 

Our audit sample included three grants awarded to three Afghan government entities between 2007 and 

2011. USAID had not disbursed funds for one grant as of September 30, 2011. For the remaining two 

grants, USAID had disbursed a total of $2.9 million to two Afghan government entities as of September 

30, 2011. Table 5 shows the amount of USAID funding provided under the three awards. 

 

28SIGAR Audit-10-8, Afghanistan’s Control and Audit Office Requires Operational and Budgetary Independence, 

Enhanced Authority, and Focused International Assistance to Effectively Prevent and Detect Corruption 

(April 9, 2010).

29ADS 350.3.1.

30ADS 591.3.2.1.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 15

Table 5: Grants to Afghan Government Entitites, 

(dollars in millions)

as of September 30, 2011 

Afghan government entity Total 

estimated 

value

Total 

obligated

Total 

disbursed

Ministry of Finance $2.0 $1.7 $1.7

Programe-e-Tahkem Solh (Commission for Peace and 

Reconciliation) $2.7 $1.3 $1.2

Ministry of Agriculture, Irrigation, and Livestock $85.0 $0 $0

Total $89.7 $3.0 $2.9

Source: SIGAR analysis of USAID data.

A review of USAID’s award files found that all three grants included standard language requiring the 

Afghan government entities to maintain books and records relating to grant funds, as well as provide 

USAID, or its representatives, with rights to audit those records. As of September 30, 2011, $1 million of 

the $2.9 million disbursed had been audited, as required. 

•

•

•

USAID disbursed $1.7 million through one grant to the Afghan Ministry of Finance. An 

implementation letter signed in June 2010 provided funding for the salaries of certain Afghan 

government officials from February 1, 2010 to March 20, 2011. Expenditures of $1 million made 

under that grant during the period June 6, 2010 to September 30, 2010 were audited by a private 

Afghan audit firm, resulting in $356,469 in questioned costs and the identification of one significant 

internal control deficiency and one material instance of noncompliance with local tax laws. However, 

the audit did not cover the entire period of the grant. Consequently, another audit will be necessary to 

cover expenditures that were made during the last 6 months of the award. 

The second grant, with disbursements of $1.2 million, was approved by USAID in July 2007 to 

provide operating funds to the Afghan government’s Program-e Tahkem-e-Solh Commission, an 

independent government body created by the Afghan President to facilitate peace and reconciliation 

between the government and ex-combatants. USAID arranged for a financial audit of the award by a 

private audit firm, but the audit was never conducted because commission officials were unwilling to 

provide access to their records. USAID files show that commission officials refused two separate 

attempts to audit their records by agency-contracted audit firms, but eventually consented to a 

financial review by a team that included only USAID Afghan employees and an auditor from the 

Afghan CAO. The financial review questioned costs of $11,132, an amount later reduced to $8,462 

after Afghan officials provided supporting documentation. However, a full financial audit in 

accordance with the USAID Guidelines has not been conducted. 

The third grant consisted of an implementation letter signed in July 2010 to establish an agricultural 

development fund for loans and grants to small commercial farmers. According to the letter, grant 

proceeds would be used solely as capital for loans and grants. USAID planned to provide $85 million 

directly to the Afghan Ministry of Agriculture, Irrigation, and Livestock, and $15 million to a 

contractor to initiate and manage the new fund. The implementation letter required the Afghan 

government to have annual audits conducted by the CAO or an independent auditor in accordance 

with USAID’s Guidelines. The audits, to be completed no later than 9 months after the end of the 

Afghan government’s fiscal year, were to determine whether the receipt and expenditure of funds 

provided under the implementation letter were in accordance with generally accepted accounting 

principles and whether the Afghan government had complied with the terms of the implementation 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 16

letter. As of September 30, 2011, none of the $85 million had been disbursed to the Ministry, so a 

financial audit of that portion of the grant was not yet required.31 

Audits Were Conducted as Required for Non-U.S.-based Nonprofit Organizations 

USAID policy states that agreements with foreign (non-U.S.-based) nonprofit organizations must include 

standard provisions requiring them to contract with independent auditors, acceptable to the OIG, to 

perform financial audits of the funds provided through USAID awards.32 The contracted audits must be 

performed annually in accordance with USAID’s Guidelines whenever a recipient expends $300,000 or 

more in USAID funds during its fiscal year. According to the Guidelines, financial audits of the funds 

provided by USAID must be performed in accordance with U.S. Government Auditing Standards, or other 

approved standards where applicable. The specific objectives of a recipient-contracted audit are to 

express an opinion on the fund accountability statement, evaluate the recipient's internal controls and 

identify significant deficiencies, perform tests for compliance with agreement terms and applicable laws 

and regulations, review indirect cost rates, and determine if the recipient has taken adequate corrective 

action on prior audit report recommendations.33

According to agency policy, USAID officials must ensure that the responsible OIG office receives 

recipient-contracted audit reports for desk review within 9 months after the end of the fiscal year in which 

the expenditures were incurred.34 According to the Guidelines, even when a recipient-contracted audit is 

not required, if USAID determines that an audit must be performed, the audit report must be submitted to 

the OIG for review and issuance. Further, the OIG reserves the right to conduct audits using its own staff, 

notwithstanding acceptable audits performed by other auditors, in cases where special accountability 

needs are identified.

Our sample included two cooperative agreements issued in 2008 through which USAID had disbursed 

$28.5 million to two different non-U.S.-based nonprofit organizations as of September 30, 2011 

(see table 6). 

Table 6: Cooperative Agreements to Non U.S.-based Nonprofit Organizations, as of

September 30, 2011 (dollars in millions)

Non-U.S.-based nonprofit organization Total

estimated

value

Total

obligated

Total

disbursed

American University of Afghanistan $42.1 $24.8 $22.7

Turquoise Mountain Trust $10.6 $7.4 $5.8

Total $52.7 $32.2 $28.5

Source: SIGAR analysis of USAID data..

 

31As of June 20, 2011, the contractor managing the fund, Development Alternatives International, Inc., had 

disbursed about $4.5 million of the $15 million. USAID officials did not include those disbursements in their fiscal 

year 2011 audit plan because the funds had been provided to a U.S. contractor which should eventually receive an 

incurred cost audit by DCAA.

32ADS 591.3.2.1

33The fund accountability statement is the basic financial statement to be audited that presents the recipient's 

revenues, costs incurred, cash balance of funds provided to the recipient by USAID, and commodities directly 

procured by USAID for the recipient's use.

34ADS 591.3.2.1d.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 17

Financial audits were conducted, as required, of expenditures under both USAID awards. An audit of 

$9.5 million of USAID funds expended by the American University of Afghanistan during 2008-2009 

resulted in questioned costs of $685,643 of which USAID agreed to recover $116,273. Two annual audits 

covering $2.9 million of USAID funds expended by Turquoise Mountain Trust between 2008 and 2009 

resulted in questioned costs of $17,781, all of which USAID agreed to recover.

Fixed-price Awards to Non-U.S. Contractors Do Not Require Annual Financial Audits 

Our audit sample also included three fixed-price awards issued between 2004 and 2007 through which 

USAID had disbursed $65.7 million to three non-U.S.-based contractors as of September 30, 2011.35 

Missions must assess risk at least annually to determine when financial audits of foreign (non-U.S.-based) 

contractors are required.36 However, USAID policy also states that fixed-price contracts are not subject 

to an annual audit requirement.37

Financial Audits of Funds Provided to Other U.S. Agencies Not Conducted because Audits 

Were Not Required or Audit Requirements Were Vague 

USAID normally implements programs through contracts and grants with private-sector entities and 

individuals. Under appropriate circumstances, however, USAID may engage other Federal agencies to 

help implement its programs. Section 632(b) of the Foreign Assistance Act of 1961 allows USAID to 

“buy” the services of other Federal agencies. According to ADS 306, USAID may use several 

interagency agreements for this purpose, including Participating Agency Service Agreements (PASA) and 

Participating Agency Program Agreements (PAPA). Under a PASA, the participating agency is expected 

to supply USAID with personnel that have the requisite expertise called for by the agreement. 

Participating agency personnel working under a PASA receive personnel support from their own agency, 

but work in USAID space or under USAID supervision. In contrast, under a PAPA, a participating 

agency normally performs work autonomously from USAID—similar to a contractor. 

According to USAID policy, it is accountable for the funds it obligates under the Foreign Assistance Act

and must provide the necessary oversight and coordination for the services or program it finances.38 

Although USAID does not typically audit another U.S. agency, USAID may require it to include audit 

clauses in agreements that it enters into with contractors, grantees, and cooperative agreement recipients. 

Normally, PASAs do not include such audit clauses because the participating agency is not likely to make 

awards of a size that would warrant audits. However, ADS 306 requires that PAPAs include standard 

provisions for audit requirements for funds transferred by the agreement, including funds to contractors or 

grantees. 

Our sample included 12 PASAs, PAPAs, and other interagency agreements issued pursuant to section 

632(b) between 2003 and 2010 through which USAID had disbursed $88.2 million to seven U.S. 

government agencies as of September 30, 2011 (see table 7).

 

35The three firms were Afghanistan Management Group ($35 million), Descon Holdings, Ltd., ($27 million), and 

Land Bridge International, LLC, ($3.7 million).

36ADS 591.3.2.1(f).

37ADS 591.3.2.1(g).

38ADS 306.3.2.21.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 18

Table 7: Awards to Other U.S. Government 

(dollars in millions)

Agencies, as of September 30, 2011 

U.S. government agency Total 

estimated 

value

Total 

obligated

Total 

disbursed

U.S. Army Corps of Engineers $50.2 $47.1 $45.2

Department of State $29.5 $29.5 $29.5

Federal Aviation Authority $6.4 $5.4 $5.2

U.S. Geological Survey $5.0 $5.0 $5.0

U.S. Institute of Peace $2.1 $2.1 $2.1

Department of Agriculture $1.0 $.9 $.9

Defense Contract Audit Agency $0.5 $0.5 $0.3

Total $94.7 $90.5 $88.2

Source: SIGAR analysis of USAID data.

Six PASAs and another agreement for commercial services did not require a financial audit. Of the four 

PAPAs in the sample, three agreements were with the U.S. Army Corps of Engineers and one was with 

the Department of State. As of September 30, 2011, USAID had transferred a total of $31.6 million under 

those agreements to fund activities that included the construction of roads, university classrooms, and 

refurbishment of schools and clinics. Each PAPA and another agreement with the U.S. Institute for 

Peace39 contained vague language regarding financial audit requirements, including language from 

USAID’s standard provisions for such agreements that provided audit rights to both participating 

agencies, but was unclear regarding if and by whom financial audits should be conducted. The Inspector 

General Act does not include specific audit requirements for interagency agreements or for contractors 

and grantees financed by funds provided through such agreements. As a result, neither USAID nor the 

participating agencies arranged for financial audits of funds provided under the agreements. 

Delays in Close-out Audits Limit Assurance Regarding Proper Use and Disposition of 

Funds and Property

Over two-thirds of USAID’s 305 major awards for Afghanistan reconstruction had expired as of 

September 30, 2011, but the majority of those expired awards were not closed out within suggested 

timeframes. Consequently, USAID lacked assurance as to the proper use and final disposition of funds 

and property provided under the expired awards, many of which carried large balances of unliquidated 

obligations and unpaid cost share.40 

40Cost share refers to the resources, including cash and in-kind, that a recipient contributes to the total cost of an 

agreement. Cost sharing becomes a condition of an award when it is part of the approved award budget. Cost 

sharing must be verifiable from the recipient's records, is subject to Federal post-award requirements, and can be 

audited. 

39The U.S. Institute for Peace is a Congressionally-funded independent Federal institution administered by a 

bipartisan board of directors appointed by the U.S. President and confirmed by the Senate and charged with 

preventing and resolving violent international conflict.

USAID’s close-out procedures for awards are designed to help ensure that the disposition of all funds, as 

well as non-expendable property, is properly authorized and documented. An important component of the 

close-out process is the use of close-out audits. According to USAID policy,field missions have the 

responsibility for ensuring administrative closeout of their own awards, as well as those transferred to the 

 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 19

field, and the deobligation of residual balances.41 The policy states that field mission contracting and 

assistance officers should take the lead role in ensuring that such closeouts are accomplished. Further, 

agency guidance indicates that contracting and assistance officers should initiate the administrative 

closeout of an award as soon as possible after completion of an award, but no later than 3 months after 

completion. 

Per USAID policy, obligated funds must be deobligated when a determination is made that the funds are 

no longer needed for the purposes for which they were obligated.42 Obligation managers must 

continuously monitor unexpended obligated balances and request that excess or unneeded funds are 

deobligated. In field missions, obligation managers should provide confirmation to the mission controller 

that residual funds are available for deobligation. 

According to USAID’s audit policy, a “close-out” financial audit must be performed for all awards with 

cumulative expenditures in excess of $500,000.43 As a general rule, annual incurred cost audits fulfill the 

close-out audit requirement for U.S. and foreign for-profit organizations. Similarly, OMB Circular A-133 

annual audits fulfill the close-out audit requirement for U.S. nonprofit organizations, and annual audits in 

accordance with USAID’s Guidelines fulfill the close-out audit requirement for foreign nonprofit 

organizations. In any case, the contracting or grant officer may not proceed with the close-out process 

until USAID has taken final action on all audit recommendations. Thus, delays in conducting closeout audits contribute to delays in closing out expired awards and deobligating residual funds. Further, 

close-out audits help determine whether recipients provided cost sharing contributions in accordance with 

the terms of the agreement. If a recipient does not meet its cost sharing requirement, those costs may be 

questioned.44

More than $130 Million Remains in Unexpended Obligations and Unpaid Cost Share from Expired but 

Unclosed Awards

As of September 30, 2011, of the 64 sampled awards, 41 had expired but only 13 had been closed out. Of 

the 28 expired but unclosed awards, 16 included obligated but unexpended balances totaling 

$16.8 million. The majority of those unexpended funds ($15.7 million) were obligated under 8 expired 

awards to U.S. contractors. Two of the expired but unclosed awards had unpaid cost share totaling 

$1.5 million. 

Based on these findings, we expanded the scope of our testing to include the entire universe of USAID’s 

305 major awards for Afghanistan reconstruction. We found that, of the 205 awards that had expired as 

of September 30, 2011, 90 had unspent obligations totaling $103 million. Although 72 awards, with a 

total of $96 million in unspent obligations, expired less than 3 years prior to September 30, 2011, 

18 awards, with a total of $7 million in unspent obligations, had expired 3 or more years earlier. The 

oldest expired award with unspent obligations ended in 2004 and still carried a balance of $335,626 as of 

September 30, 2011, nearly 7 years later. In addition to expired awards’ unspent obligations, we 

identified 13 expired awards with unpaid cost share totaling $27.3 million as of September 30, 2011. 

 

41ADS 621.3.10 and Contract Information Bulletin 90-12, Guidance for Missions – Closing out Contracts, Grants 

and Cooperative Agreements. 42ADS 621.3.9.

43ADS 591.3.3.2.

44Section 3.4 of USAID’s Guidelines for Financial Audits Contracted by Foreign Recipients. 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 20

USAID officials in Afghanistan were aware of the large number of expired but unclosed awards in its 

portfolio and have taken steps to close out those awards and reprogram unused funds.45 During a risk 

assessment conducted by USAID’s Mission for Afghanistan in conjunction with the agency’s annual 

Federal Managers Financial Integrity Act review for fiscal year 2011, contracting officials acknowledged 

that acquisition and assistance instruments were not being closed out in a timely manner due to 

understaffing. The same officials indicated that they were taking steps to address this weakness with the 

creation of a contract management team. 

45In April 2011, an internal memo from the mission’s financial management office to the mission’s contracting 

office a listed the awards that had expired as of February 28, 2011. The list included 53 expired awards with unliquidated obligations totaling $36.2 million. According to the memo, those amounts could be reprogrammed and 

put to better use for other activities. The memo requested that mission contracting officials “initiate close-out 

actions where appropriate and coordinate with [the mission financial management office] on the de-obligation of 

funds and resolution of audit or other financial issues, if any.” A similar list, dated October 13, 2011, indicated that 

USAID officials had deobligated about $6 million from expired awards, but 47 expired awards with a total of 

$30.1 million in unexpended obligations had not been closed.

A reason that expired awards were not being closed out in a timely manner was because of the delays in 

conducting incurred cost audits of U.S. contractors. USAID officials did not arrange for close-out audits 

of the expired contracts in our sample because they assumed that the close-out requirement would be met 

through annual DCAA incurred cost audits. However, as previously discussed, none of the U.S. 

contractors in our sample had received an incurred cost audit from DCAA covering the period of 

expenditures under their respective awards. 

Close-out audits can help USAID’s contracting and grant officers expeditiously close out expired awards 

by providing assurance as to the proper use and disposition of funds, including required cost share. 

Unlike most Federal agencies, USAID has authority to re-obligate funds that it identifies as no longer 

needed under an original obligation, but the reobligation must take place within a specified period of 

time.46 Further, most USAID contracts and grant agreements only require recipients to retain financial 

records for 3 years, unless any litigation, claim, or audit is started before the expiration of the 3-year 

period. Consequently, long delays in starting a close-out audit could result in the loss of accounting 

records and other supporting documentation, as well as delays in recovering unliquidated obligations and 

unpaid cost share. As of September 30, 2011, USAID had 90 expired awards with unexpended 

obligations totaling $103 million and 13 expired awards with unpaid cost share totaling $27.3 million. 

46According to ADS 621.3.11, USAID appropriated funds that are obligated within their initial period of availability

will be available for 4 additional years for deobligation and reobligation. At the end of the 4 years, the funds 

“expire” and are no longer available for new obligations.

USAID Lacked Transparency over Audits of Sub-recipients

In most circumstances, sub-recipients that receive USAID funds through an implementing partner are 

subject to the same financial audit requirements. Awards usually include “flow-down” clauses 

requiring sub-recipients to meet USAID audit requirements and to maintain their books and records 

for a specified period of time so that they may be audited. For example, ADS 591 states that 

implementing partners must ensure that their U.S. nonprofit sub-recipients expending $500,000 or more 

in Federal funds during their fiscal year are audited in accordance with OMB Circular A-133. Similarly, 

they must also ensure that their foreign nonprofit sub-recipients adhere to USAID’s standard provisions 

for non-U.S. nongovernmental grantees, which require annual audits in accordance with the USAID 

Guidelines for foreign nonprofit organizations receiving $300,000 or more in USAID funds during their 

fiscal year. Further, the FAR requires contractors receiving Federal funds to insert a clause in subcontracts containing all the audit terms to which the prime contractors are subject. 

According to USAID audit policy, USAID’s legal relationship is with the implementing partner or prime. 

Therefore, USAID is not responsible for directly monitoring sub-recipients unless otherwise required by 

 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 21

law. Per the policy, an independent auditor performing a review of the prime must determine whether it

has met the audit and monitoring requirements pertaining to sub-recipients. However, USAID retains the 

right to request an audit of a sub-recipient if the agency determines that the potential for waste or 

fraud exists. 

USAID officials have no systematic way of determining whether appropriate flow-down clauses are 

included in sub-recipient contracts and agreements, or whether the sub-recipients are audited, as required. 

A primary reason is USAID’s reliance on primes to ensure compliance relating to sub-recipients. Also, 

USAID’s accounting system does not track the level of funds passed through primes to sub-recipients. 

For example, USAID program files in Kabul indicated that one of USAID’s major contractors for 

Afghanistan reconstruction, Louis Berger Group, Inc., was not obtaining required annual incurred cost 

audits of its subcontractors. As a result, at least three of its subcontracts, valued at $24 million, had not 

been audited, as required. This increased the risk that unallowable costs may be charged to USAID 

through the prime contractor. 

Although an exact percentage was not available, USAID contracting and grant officials whom we 

interviewed suggested that up to 50 percent of USAID funding provided to implementing partners for 

Afghanistan reconstruction may be passed to sub-recipients. Consequently, as much as half of the 

$9.5 billion in USAID disbursements under awards for Afghanistan reconstruction may have gone to subrecipients for which USAID has little visibility or accountability in terms of financial audits. 

CONCLUSIONS

Since 2002, USAID has provided nearly $9.5 billion in Afghanistan reconstruction funds to its 

implementing partners in Afghanistan. Financial audits of funds expended under these awards provide 

USAID with assurance that the funds were properly accounted for and used as intended. This assurance 

is critical because the restrictive security environment in Afghanistan makes it difficult to monitor 

program activities. However, for a number of reasons many awards have not been audited.

Delays in annual incurred cost audits of U.S. contractors, through which USAID provides more than half 

its funding for Afghanistan reconstruction, are a primary concern. DCAA is experiencing a large backlog 

and USAID’s funding for audits of contractors has been constrained, resulting in audits that are not 

performed until a number of years after the period being audited. In addition, Office of Management and 

Budget Circular A-133 audits of U.S. nonprofit organizations provided limited accountability over funds 

used specifically for activities in Afghanistan. Further, USAID has not used financial audits to close out 

expired awards, leaving more than $130 million in unexpended obligations and unpaid cost sharing on its 

books. Finally, USAID lacks transparency with regard to financial audits of expenditures under subawards. As a result, USAID has limited assurance that billions of dollars expended for Afghanistan 

reconstruction since 2002 have been properly accounted for or used as intended. 

RECOMMENDATIONS

To improve financial audit coverage of U.S.-based contractors, we recommend that the Administrator of 

USAID take the following action:

1. Increase the quantity and timeliness of incurred cost audits of U.S. contractors by (a) using 

appropriations for program funds to help finance those audits and (b) contracting with private 

audit firms for those instances in which DCAA cannot respond to audit requests. 

To provide better accountability over funds provided to contractors and grantees for Afghanistan 

reconstruction, we recommend that the Administrator of USAID take the following actions:
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 22

2. Develop a system to identify and prioritize awards to U.S. nonprofit organizations to determine 

whether USAID should (a) request that the awards be audited as major programs by the 

organizations’ OMB Circular A-133 auditors or (b) contract for award-specific financial audits of 

those awards. 

3. Expedite close-out audits for expired awards, especially for (a) the 90 expired awards with 

$103 million in unexpended obligations and (b) the 13 expired awards with $27.3 million in 

unpaid cost share as of September 30, 2011. 

4. Amend USAID’s awards for Afghanistan reconstruction to include a requirement that prime 

recipients develop and submit to the respective contract or agreement officer a plan for ensuring 

that financial audits of expenditures under sub-awards are conducted, as required.

COMMENTS

In commenting on a draft of this report, USAID found the report informative and objective and noted that 

it fully recognizes the need to conduct more financial audits in a timely manner to ensure accountability 

for the funds channeled by USAID through its implementing partners. Overall, USAID generally 

concurred with the recommendations and noted that it has taken some steps to address them. USAID also 

provided some technical comments, which we incorporated into the final report, as appropriate. These 

comments are reproduced in appendix III. 

In response to recommendation one, USAID acknowledged that it has experienced significant delays with 

DCAA audits and described steps it has taken to increase their timeliness. USAID stated that it will 

consider contracting with private audit firms to conduct the audits in a more timely manner, but noted that 

the lack of qualified audit firms in Afghanistan would require hiring U.S. and international audit firms 

that will likely increase audit costs. While USAID also stated that its Kabul Mission was already using 

program funds to finance audit costs, we encourage USAID headquarters to do the same when contracting 

for incurred cost audits of U.S. contractors doing work in Afghanistan. 

In response to recommendation two, USAID said that it does not have authority to direct a U.S. nonprofit 

organization’s auditor to reclassify a USAID project as a major program. However, as we note in the 

report, Section 215(c) of OMB Circular A-133 specifically allows Federal agencies the option of 

requesting that particular programs be audited as major programs in lieu of conducting or arranging for 

additional audits. We encourage USAID to take advantage of this provision. In regard to the second part 

of the recommendation, USIAD noted that its Kabul Mission has already identified and prioritized 

numerous awards for award-specific audits in developing its fiscal year 2012 Audit Inventory and Audit 

Plan. 

In response to recommendation three, USAID acknowledged the need to audit all awards in a more timely 

fashion and is already pursuing more aggressive means to audit and close out awards. USAID stated that 

it will take action on unexpended obligations, and will further review awards and take appropriate 

recovery action when cost share requirements were not met. 

In response to recommendation four, USAID stated that it will request that its Office of Acquisition and 

Assistance in Washington, D.C., review the standard audit language required for all awards, and will 

notify SIGAR of the review results.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 23

APPENDIX I: SCOPE AND METHODOLOGY 

This report provides the results of our review of financial audits of major USAID contracts, grants, and 

other awards for Afghanistan reconstruction. This report identifies the universe of awards that USAID 

has funded for Afghanistan reconstruction since 2002 and assesses the extent to which financial audit

requirements had been met for various types of recipients and awards, including expired awards and subawards. The period of our review was from February 1, 2002 to September 30, 2011. 

To identify the universe of awards that USAID has funded for Afghanistan reconstruction since 2002, we 

obtained a listing of major grants and contracts from USAID. The listing was from a monthly report 

entitled Status of Major Grants and Contracts issued by USAID’s Mission for Afghanistan’s Office of 

Financial Management as of September 30, 2011. The report indicated that it included all awards over 

$100,000 and excluded personal service contracts. The report included data fields for each award that 

identified the technical office responsible for the award, award number, program area, latest modification 

number, name of contractor/recipient, program name, close-out status, start and end dates, agreement 

type, and name of the contract/agreement officer’s technical representative. In addition, the report 

displayed financial information for each award that included total estimated cost, required and actual cost 

share, obligated amount, mortgage balance (total estimated cost minus obligated amount), disbursement 

per Phoenix (USAID’s accounting system), undisbursed balance, quarterly accruals, total accrued 

expenses, life of project in months, number of months elapsed, pipeline amount (obligated amount minus 

total accrued expenses), average expenditures per month, and remaining life of project in months. We 

analyzed the data by sorting it several different ways, grouping the awards by recipient to determine the 

top ten recipients in terms of disbursements received, and separating expired awards from active, ongoing 

awards. 

We performed data reliability tests to determine the accuracy and completeness of the computerprocessed data in the report by comparing dates and financial balances for the random sample of 64 

awards to physical records kept in offices at USAID’s Mission for Afghanistan in Kabul, Afghanistan. 

We found only a few minor discrepancies which we submitted to USAID for correction. We also 

compared disbursement balances for all awards listed in the report to accounting data downloaded from 

USAID’s Phoenix system by our forensic audit team in Washington, D.C. We were able to reconcile the 

total disbursements in the report with data from USAID’s accounting system to within 97.4 percent 

accuracy. We determined that the data were sufficiently reliable for purposes of the audit objectives.

We assessed the internal controls of USAID’s Bureau for Management, Office of Acquisition and 

Assistance, Contract Audit and Support Division regarding the receipt of incurred-cost submissions from 

U.S.-based contractors, risk assessments to determine whether to request DCAA incurred-cost audits, and 

the request and tracking of scheduled audits. We assessed USAID/Afghanistan’s Office of Financial 

Management’s internal controls regarding the preparation of annual award inventories and the execution 

of annual audit plans for recipient-contracted and agency-contracted audits. We also assessed 

USAID/Afghanistan’s Office of Acquisition and Assistance’s internal controls regarding the 

completeness and accuracy of physical and electronic project files.

To determine the extent to which financial audits had been performed for USAID awards for Afghanistan 

reconstruction, we selected a statistically valid random sample of 64 awards issued between 

February 1, 2002 and September 30, 2011, stratified by type of award, to ensure that representative 

samples from each category of award—contracts, grants, cooperative agreements, and interagency 

agreements—were selected. As of September 30, 2011, the 64 sampled awards had received almost 

$2.5 billion (26 percent of funding for all 305 major awards). The sampled awards included 24 contracts 

or task orders to U.S. and foreign contractors, 23 grants and cooperative agreements to U.S. and foreign 

nonprofit organizations, 12 interagency agreements with other U.S. government agencies, 3 awards to 

Afghan government entities, and 2 awards to multilateral organizations. Of the 64 sampled awards, 41 

had expired as of September 30, 2011, and the other 23 were ongoing. Table 8 shows a summary of the 

64 awards selected for the sample. 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 24

Table I: 64 

millions)

Awards Selected for Audit Sample, as of September 30, 2011 (dollars in 

Type of recipient Total 

awards

Total 

estimated 

value

Total 

obligated

Total 

disbursed

U.S.-based contractors 21 $1,569 $1,210 $1,095

U.S.-based nonprofit organizations 21 $226 $177 $168

Multilateral organizations 2 $2,085 $1,078 $978

Afghan government entities 3 $90 $3 $3

Non-U.S.-based nonprofit organizations 2 $53 $32 $29

Non-U.S.-based contractors 3 $66 $66 $66

Other U.S. government agencies 12 $95 $91 $88

Total 64 $8,183 $2,657 $2,426

Source: SIGAR analysis of USAID data.

Note: Totals affected by rounding.

To determine financial audit requirements, we reviewed laws, regulations, policies, standard operating 

procedures, and other guidance relating to financial audit requirements of recipients of USAID funds. We 

reviewed USAID policy regarding financial audits of recipients in Automated Directives System (ADS) 

Chapter 591, Financial Audits of USAID Contractors, Recipients, and Host Government Entities. For 

awards to U.S. contractors, we reviewed relevant sections of the Federal Acquisition Regulation, USAID 

Acquisition Regulation, and ADS 301-Responsibility for Procurement. For awards to U.S. nonprofit 

organizations, we reviewed Office of Management and Budget’s Circular A-133, USAID’s ADS 303-

Grants & Coop Agreements to NGOs, and 22 CFR § 226.26 - Non-Federal audits. For awards to other 

U.S. government agencies, we reviewed ADS Chapter 306 - Interagency Agreements, and Section 632 of 

the Foreign Assistance Act of 1961 (P.L. 87-195). For awards to Afghan government entities, we 

reviewed ADS 305 – Host Country Contracting, and ADS 350 - Grants to Foreign Governments. For 

awards to multilateral organizations, we reviewed ADS Chapter 308 - Awards to Public International 

Organizations. To determine close-out audit requirements, we reviewed ADS Chapter 621 – Obligations,

USAID’s Guidance on Closeout Procedures for A&A Awards, and Contract Information Bulletin 90-12, 

Guidance for AID Missions – Closing Out Contracts, Grants and Cooperative Agreements. To determine 

financial audit requirements regarding sub-awards, we reviewed applicable sections from each of the 

sources mentioned above, as well as 22 CFR § 226.5 – Subawards. Based on this research, we prepared a 

chart of the various financial audit requirements which is presented in Appendix II.

To determine whether financial audits of USAID funds provided to contractors, grantees, and other 

entities for Afghanistan had been conducted as required for ongoing, expired, and subawards, we 

searched for evidence of audits in the program files for each of the 64 awards in our sample and traced 

each sampled award through USAID’s annual audit planning process to verify whether and when 

financial audits had been conducted. We reviewed annual award inventories and annual audit plans 

prepared by USAID’s Kabul Mission to determine why financial audits were not conducted. For U.S. 

contractors, we obtained USAID’s database of the Defense Contract Audit Agency (DCAA) audits and 

reconciled that information with data provided by DCAA to determine whether DCAA had conducted 

incurred cost audits of the contractors in our sample. For U.S. nonprofit organizations, we verified 

whether those organizations had completed and submitted audits in accordance with the Office of 

Management and Budget’s Circular A-133 by accessing the Federal Audit Clearinghouse database on the 

internet and downloading data collection forms for the organizations in our sample. We also searched the 

USAID Office of Inspector General’s semiannual reports to congress and quarterly Pakistan and 
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 25

Afghanistan booklet available on its website to determine whether any financial audits had been 

conducted of the awards in our sample.

To determine the extent to which close-out audits were conducted of expired awards, we reviewed the 41 

expired awards in our sample of 64 to confirm whether they had received a close-out audit, or an annual 

incurred cost audit that met USAID’s close-out audit requirements. For the 41 expired awards in our 

sample, we also determined how long they had been expired relative to our established cutoff date of 

September 30, 2011. Further, we determined whether those expired awards included any unliquidated 

obligations or unpaid cost share.

To determine the extent to which awards to sub-recipients of USAID implementing partners were audited, 

we interviewed USAID officials in Washington, D.C., and Kabul, Afghanistan, including five contracting 

and assistance officers responsible for signing contracts and grant agreements in Kabul, as well as ten of 

their technical representatives. In addition, we met with USAID financial management personnel in 

Kabul to understand the development of the mission’s award inventories and annual audit plans. We also 

met with officials of USAID’s Office of Inspector General based in Washington, D.C., and Kabul, 

Afghanistan, to gain an understanding of the OIG’s role in reviewing financial audits of USAID 

recipients. Finally, we interviewed representatives from five of the USAID implementing partners in our 

sample with operations in Afghanistan to gain an understanding of how they fulfill their financial audit 

requirements regarding awards to sub-recipients. 

We conducted work in Kabul, Afghanistan, and Washington, D.C., from March 2011 to March 2012 in 

accordance with generally accepted government auditing standards. These standards require that we plan

and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit objectives. This audit was 

conducted under the authority of Public Law No. 110-181, as amended, the Inspector General Act of 

1978, and the Inspector General Reform Act of 2008.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 26

APPENDIX II: USAID FINANCIAL AUDIT 

IMPLEMENTING PARTNER

REQUIREMENTS BASED ON TYPE OF 

The following table outlines the different financial audit requirements for various types of USAID 

recipients and awards. 

Table II: Financial Audit Requirements by Type of Implementing Partner

Type of 

implementing 

partner

Type of award Audit 

threshold

Frequency Criteria Auditor Number in 

sample

U.S.-based forprofit 

organization

Contract or 

cooperative 

agreement

Incurred cost 

based on risk 

assessment

Assessed 

annually

FAR 52.215-2, FAR 

52.216-7, 220 CFR 

226, ADS 591.3.1.2

DCAA

21 

U.S.-based nonprofit 

organization

Grant or 

cooperative 

agreement

$500,000 Annually, 

based on 

recipient’s 

fiscal year

OMB Circular A-133 OIG-approved

audit firm 21

Multilateral

organization

Cost-type grant 

or general 

contribution 

grant (trust fund)

N/A N/A ADS 308.3.6 USAID relies 

on multilateral 

organization’s

audit policies

2 

Host government 

entity

Grant $300,000 

($500,000 

cumulative 

for close-out)

Annually, 

based on 

recipient’s 

fiscal year

ADS 

OIG 

591.3.2.1 and 

Guidelines

SAI or OIGapproved

audit firm 3 

Non-U.S.-based 

non-profit 

organization

Grant or 

cooperative 

agreement

$300,000 

($500,000 

cumulative 

for close-out)

Annually, 

based on 

recipient’s 

fiscal year

ADS 

OIG 

591.3.2.1 and 

Guidelines

OIG-approved

audit firm 2 

Non-U.S.-based 

for-profit 

organization

Contract or 

Cooperative 

Agreement

Incurred cost 

based on risk 

assessment

Assessed 

annually

ADS 591.3.2.1, OIG 

Guidelines, 220 

CFR 226, ADS 

591.3.1.2f

OIG-approved

audit firm or 

DCAA 3 

U.S. government 

agency

PAPA, PASA, or 

Interagency 

agreement 

(632(b))

N/A N/A ADS 306.3.2.21 USAID and 

participating 

agency OIG 12

Source: SIGAR analysis of USAID data.
SIGAR Audit-12-9 Contract Performance and Oversight/USAID Audits Page 27

APPENDIX III: COMMENTS FROM THE U.S. AGENCY FOR INTERNATIONAL 

DEVELOPMENT 

SIGAR Comment: This report was originally issued on April 30, 201

It was reissued on May 2, 2012, to reflect USAID’s written comment

on a draft of this report. USAID provided its comments to SIGAR af

the original report had been publically released, but SIGAR considere

the comments substantive and necessary for a full understanding of th

issues presented and USAID’s efforts to address them. USAID’s 

comments are reproduced here.

2. 

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(This performance audit was conducted under the audit project code SIGAR-044A).
SIGAR’s Mission The mission of the Special Inspector General for Afghanistan 

Reconstruction (SIGAR) is to enhance oversight of programs for 

the reconstruction of Afghanistan by conducting independent 

and objective audits, inspections, and investigations on the use 

of taxpayer dollars and related funds. SIGAR works to provide 

accurate and balanced information, evaluations, analysis, and 

recommendations to help the U.S. Congress, U.S. agencies, and 

other decision-makers to make informed oversight, policy, and 

funding decisions to: 

• improve effectiveness of the overall reconstruction 

strategy and its component programs; 

improve management and accountability over funds 

administered by U.S. and Afghan agencies and their 

contractors; 

improve contracting and contract management 

processes;

prevent fraud, waste, and abuse; and 

advance U.S. interests in reconstructing Afghanistan. 

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Obtaining Copies of SIGAR To obtain copies of SIGAR documents at no cost, go to 

Reports and Testimonies SIGAR’s web site (www.sigar.mil). SIGAR posts all publically 

released reports, testimonies, and correspondence on its Web 

site.

To Report Fraud, Waste, and To help prevent fraud, waste, and abuse by reporting allegations 

Abuse in Afghanistan of fraud, waste, abuse, mismanagement, and reprisal contact 

Reconstruction Programs SIGAR’s hotline: 

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Web: www.sigar.mil/fraud

Email: sigar.pentagon.inv.mbx.hotline@mail.mil 

Phone Afghanistan: +93 (0) 700-10-7300 

Phone DSN Afghanistan 318-3912, ext. 7303 

Phone International: +1-866-329-8893 

Phone DSN International: 312-664-0378 

U.S. fax: +1-703-601-4065 

Public Affairs Public Affairs Officer

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Phone: 703-545-5974 

Email: sigar.pentagon.ccr.mbx.public-affairs@mail.mil

Mail: SIGAR Public Affairs

2530 Crystal Drive 

Arlington, VA 22202