USAID Financial Audit Guide

for Foreign Organizations

A Mandatory Reference for ADS Chapter 591

Partial Revision Date: 10/11/2023

Responsible Office: M/CFO
File Name: 591maa_101123
 1. Acronyms

AICPA American Institute of Certified Public Accountants

ACA Agency Contracted Audit

CFR U.S. Code of Federal Regulations

GAAP Generally Accepted Accounting Principles

GAGAS Generally Accepted Government Auditing Standards

GAO U.S. Government Accountability Office

IAASB International Auditing and Assurance Standards Board

IFAC International Federation of Accountants

IFRS International Financial Reporting Standards

INTOSAI International Organization of Supreme Audit Institutions

IPSAS International Public Sector Accounting Standards

ISA International Standards on Auditing

MCA Mission Contracted Audit

NFA Non-Federal Audit

NICRA Negotiated Indirect Cost Rate Agreement

OIG USAID Office of the Inspector General

QCR Quality Control Review

RCA Recipient Contracted Audit

RIG USAID Regional Inspector General

SAI Supreme Audit Institution

2
 2. Purpose

2.1. Background

The USAID Financial Audit Guide for Foreign Organizations (Guide) is to be used by
foreign organization recipients, referred to as "recipients" (see section 2.2
Applicability) and independent auditors to assist with meeting the financial audit
requirements of USAID awards. Awards1 are defined as USAID-funded grants,
cooperative agreements, and cost-reimbursement contracts. The Guide also provides
guidance to recipients in selecting independent auditors to perform financial audits.

USAID awards require financial audits as prescribed by the Office of Management and
Budget (OMB) Title 2 U.S. Code of Federal Regulations Part 200 (2 CFR 200),
Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance) as adopted by USAID in 2 CFR 700. The
purpose of the Uniform Guidance is to promote sound financial management, including
effective internal controls; establish uniform requirements for audits of Federal awards;
promote the efficient and effective use of audit resources; and reduce administrative
burden. To meet these requirements, recipients of USAID awards contract
independent auditors to perform annual financial audits consistent with 2 CFR 200.

This Guide, issued by USAID’s Chief Financial Officer (CFO) supersedes any previous
USAID Office of Inspector General (OIG) Guidelines for Financial Audits Contracted by
Foreign Recipients. This Guide primarily focuses on recipient contracted audits (RCA),
Agency contracted audits (ACA), and Mission contracted audits (MCA). These audits
were referred to as non-Federal audits in previous guidance. This Guide is not
applicable to audits conducted by the OIG or Government Accountability Office (GAO).

2.2. Applicability

USAID assistance to foreign organizations2 and foreign public entities3 include

provisions for recipient responsibilities on annual financial audits (ADS 303). If the

1 2 CFR 200.101 Applicability to different types of Federal awards.

2 2 CFR 200.1 Foreign organization means an entity that is: (a) A public or private organization located in a country
other than the United States and its territories that are subject to the laws of the country in which it is located,
irrespective of the citizenship of project staff or place of performance; (b) A private nongovernmental organization
located in a country other than the United States that solicits and receives cash contributions from the general public;
(c) A charitable organization located in a country other than the United States that is nonprofit and tax exempt under
the laws of its country of domicile and operation, and is not a university, college, accredited degree granting institution
of education, private foundation, hospital, organization engaged exclusively in research or scientific activities, church,
synagogue, mosque or other similar entities organized primarily for religious purposes; or (d) An organization located
in a country other than the United States not recognized as a Foreign Public Entity.
3 2 CFR 200.1 Foreign public entity means: (a) A foreign government or foreign governmental entity; (b) A public
international organization, which is an organization entitled to enjoy privileges, exemptions, and immunities as an
international organization under the International Organizations Immunities Act (22 USC 288–288f); (c) An entity
owned (in whole or in part) or controlled by a foreign government; or (d) Any other entity consisting wholly or partially
of one or more foreign governments or foreign governmental entities.

3
recipient expends $750,000 or more in Federal awards4 during the recipient’s fiscal
year, then the recipient meets the audit threshold and must complete an audit for that
fiscal year in accordance with 2 CFR 200 Subpart F. The recipient must represent
whether it expends $750,000 or more in Federal awards. For the year in which an
award concludes, the recipient’s required annual audit must include the Guidelines’
close-out audit procedures in its scope. If the recipient expends less than $750,000 in
Federal awards during the recipient’s fiscal year, the USAID Operating Unit may
determine an audit is warranted to mitigate risk or prevent fraud, waste, and/or abuse.

Additionally, 2 CFR 2005, requires recipients to verify their subrecipients, who expend
$750,000 or more in Federal funds within their fiscal year, are also audited. Further
guidance is provided in section 2.5 Multiple Awards and Subrecipients.

The Food for Peace Development Assistance Program and Food for Peace
Emergency Program must also follow the Compliance Supplement and its Addendum
(per 2 CFR 200, Appendix XI, Compliance Supplement). The U.S. Office of
Management and Budget (OMB) Office of Federal Financial Management issues the
Compliance Supplement and its Addendum on an annual basis on its website. The
audit procedures to test compliance with the requirements for these Federal programs
are outlined in the Compliance Supplement’s “Matrix of Compliance Requirements”.
The auditor must use this Compliance Supplement to perform the audits for any funds
expended under these programs.

The requirements of 2 CFR 200 do not apply directly to USAID agreements with public
international organizations (PIOs) (ADS 308). Agreements with PIOs must follow ADS
308 and its standard provisions, which contain a requirement for an independent audit.
Agreements with host country governments must contain a requirement for an
independent auditor and have audits performed in accordance with this Guide (see
section 4.3 Supreme Audit Institutions).

2.3. Compliance with Auditing Standards

In accordance with the terms of the award, audits of USAID funds provided to foreign
organization recipients are to be performed by an independent auditor per 2 CFR 200
in accordance with the U.S. Generally Accepted Government Auditing Standards
(GAGAS or the Yellow Book); herein referred to as “GAGAS”, issued by the
Comptroller General of the United States Government Accountability Office.6 In

4 Federal awards, in this context, are U.S. Government financial assistance or the cost-reimbursement contract under
the Federal Acquisition Regulations (FAR) that a non-Federal entity receives directly from any Federal awarding
agency or indirectly from a pass-through entity.
5 2 CFR 200.101(b) Applicability to different types of Federal awards. Non-Federal entities must comply with
requirements in this part regardless of whether the non-Federal entity is a recipient or subrecipient of a Federal
award.
6 GAGAS incorporates the American Institute of Certified Public Accountants (AICPA), Professional Standards that
include Statements on Auditing Standards (SASs). The SASs includes an “AU-C” identifier which represents

4
relation to other professional standards, an auditor may elect to apply the standards
established by the International Auditing and Assurance Standards Board (IAASB) and
the related International Standards on Auditing (ISA), although these standards must
be applied in conjunction with GAGAS. The International Standards of Supreme Audit
Institutions (ISSAIs) issued by the International Organization of Supreme Audit
Institutions (INTOSAI) for public-sector audits may be used in conjunction with
GAGAS.

To assist recipients in selecting a qualified audit firm, USAID maintains a list of audit
firms that are with relevant assurance considered to be capable of meeting USAID
auditing requirements (see section 4.1 USAID List of Acceptable Audit Firms). To
be compliant with 2 CFR 200, auditors and audit organizations must provide services
in accordance with GAGAS and be independent from the audited entity. The cost of
audit services failing to meet these standards may be found disallowable. USAID is
aware that some auditors considered by foreign organization recipients may not fully
comply with this Guide because of a lack of technical knowledge and experience in
using GAGAS. The USAID cognizant Controller will assess and consider this lack of
institutional capability prior to the decision whether to accept the use of such an audit
firm for these required audit services. The cognizant Operating Unit Controller may
allow exceptions to compliance with GAGAS provided that the Controller’s
assessments determined the audit firm to be generally reliable, and any deviations
from GAGAS—such as noncompliance with external quality control reviews and
continuing education requirements—must be clearly stated in the audit report as scope
limitations. The Controller may note and remove any auditors from the list of eligible
audit firms that do not make adequate progress in improving their audit capabilities to
comply with GAGAS (see section 4.1 USAID List of Acceptable Audit Firms).

2.4. Audit Costs

Recipients may charge to USAID awards a reasonably proportionate share7 of the

costs for performing the specific audit of their USAID-funded awards.8 The costs to be
charged to the USAID awards will be a matter for negotiation at the time of award
between USAID and the recipient. For recipients meeting the $750,000 audit
threshold, the audit firm is required to produce a final (as opposed to a draft) audit
report that is reviewed for quality standards by the cognizant USAID Operating Unit
and submitted to the OIG. For all other audits, the final audit report must be reviewed
and accepted by the cognizant USAID Operating Unit.

If the USAID Operating Unit returns the audit report of an audit firm for revision due to
noncompliance with professional auditing standards, only the cost of the audit work in
accordance with the terms of the award may be charged to USAID until the final audit

section(s) in the Codification of SASs. The Codification was designed for clarity and converged the standards with
the International Standards on Auditing (ISAs). See AICPA Clarified Statements on Auditing Standards.
7 2 CFR 200.425(a)
8 See also ADS 303mab Mandatory Standard Provisions for Non-U.S. Nongovernmental Organizations M2.

5
report is accepted. Any additional costs incurred in correcting deficient audit reports
will not be reimbursed by USAID unless USAID provided prior written approval to
reimburse additional costs. Should the audit firm fail to make its report acceptable, a
different audit firm may be requested to reperform the audit. In such case, the original
audit firm will not be considered acceptable to perform future USAID audits (see
section 4.1 USAID List of Acceptable Audit Firms).

2.5. Multiple Awards and Subrecipients

Some recipients may receive Federal funding from:

1. More than one USAID award,

2. Multiple USAID Operating Units, and/or from

3. Subawards provided by other U.S. or foreign entities, referred to as pass-

through entities9. A recipient receiving subaward(s) from a pass-through entity is
considered a subrecipient10.

Under such circumstances, one annual financial audit covering the funds the auditee
(see section 3.2 Auditee) received from above funding sources is required. The
recipient must include a Schedule of Expenditures of Federal Awards (SEFA)11 that
identifies funds for each specific USAID award (see section 5.3 and Appendix 2. This
SEFA should be named with a heading such as the Schedule of Expenditures of
USAID awards. Recipients required to report other Federal awards (other than
USAID) should list those awards in other sections of the SEFA.

The cognizant Operating Unit responsible for the audit is the Operating Unit with the
majority of USAID funds expended by the recipient.12 Both the cognizant Operating
Units and the pass-through entities should attend the audit entrance and exit
conferences. The cognizant Operating Unit will coordinate and assign responsibility
for the management decisions related to the recommendations and questioned costs
for each Operating Units’ awards. Pass-through entities are responsible for the
questioned costs and audit follow-up for their subawards.

When a foreign recipient receives a direct USAID award and is also a subrecipient of a
U.S. recipient organization, an annual audit (if required) must include the subawards
received from the U.S. recipient organization (pass-through entity). If a foreign
organization is only a subrecipient of a U.S. recipient organization, then the annual

9 Pass-through entities are defined in 2 CFR 200.1

10 Subrecipients are defined in 2 CFR 200.1
11 Previously known as the Fund Accountability Statement, the SEFA (or Schedule of Expenditures of Federal
Awards) is defined in 2 CFR 200.510(b).
12 USAID Operating Units can access reports in the TRACS database to determine the amount of funds expended
per recipient.

6
audit is subject to the guidelines provided under ADS 591.3.1, Audits of U.S.
Organizations. If a subrecipient audit covers funding received from multiple
recipients, the audit costs should be managed by the recipient with the largest
expended amount and the cost shared on a pro-rata basis of the funds audited. The
cognizant Operating Unit will make the determination as part of the annual audit plan.
Consistent with USAID award provisions13, each recipient is responsible for ensuring
they have full information about the combined total Federal fund expenditures of their
subawards and monitoring the audit requirements of its subrecipients or contracts.

2.6. Audit Timelines

The recipient must submit final audit reports to the cognizant USAID Operating Unit
within 30 days after receiving the report from the audit firm, but no later than nine
months after the end of the period audited, as required by the award provisions. For
audits meeting the $750,000 audit threshold, the recipient should submit the final audit
report to the cognizant USAID Operating Unit within six months after the recipient’s
fiscal year end. The USAID Operating Unit must review for quality standards and
forward the audit report to the OIG no later than nine months after the recipient’s fiscal
year end.

For audits that meet the $750,000 threshold, the OIG monitors the quality of the
financial audit reports conducted by independent auditors. The OIG reviews the final
audit reports for compliance with professional reporting standards, including GAGAS.
After their review, the OIG may issue a memorandum that transmits the audit report to
USAID with recommendations needing action. The transmittal memorandum is
publicly available on its external website.

To meet above timelines, the selection of an independent audit firm (see section 4.
Selection of an Auditor), beginning the audit process, and interim audit work should
start before the end of the recipient’s fiscal year. Initiating audits after the close of a
fiscal year could hinder timely audit reporting and may restrict the scope of certain
audit procedures, leading to additional questioned costs.

3. Roles and Responsibilities

3.1. USAID Operating Units

Operating Units must monitor the submission of required audit reports and encourage
recipients to meet the timelines (see 2.6 Audit Timelines). For each audit of any
amount of expenditures, the cognizant Operating Unit must ensure their recipients
comply with the audit requirements for Federal funds. To help with this process:

13 See also ADS 303mab, Standard Provisions for Non-U.S. Nongovernmental Organizations.

7
 1. The cognizant Agreement Officer’s Representative (AOR) should provide the
Statement of Work (SOW) template (see Appendix 1) for the recipient to use
when contracting audit services;

2. The cognizant Controller will provide a list of acceptable audit firms available for
the recipient to use14;

3. The cognizant Controller’s office may review the final SOW and;

4. The cognizant Operating Unit may provide further assistance and expertise as
needed and will participate in the audit entrance and exit conferences.

Each USAID Operating Unit is responsible for (a) timely submission (see section 2.6
Audit Timelines) of final audit reports meeting the $750,000 threshold to the OIG, (b)
preparing its own management decisions, and (c) acting upon findings and
recommendations applicable to its agreements with the recipient.

USAID will take appropriate action in the event their recipient has a continued inability
or unwillingness to have an audit performed in accordance with the Guide. Remedies
will be handled by the terms and conditions of the recipient’s agreement and could
include suspension of disbursements to the recipient until a satisfactory audit is
performed.

Each USAID Operating Unit is responsible for serving as custodians for Agency
records and will create records needed to meet the financial audit requirements of the
Agency, record decisions and actions taken, and document audit activities. The
Operating Units must file audit materials regularly and carefully in a manner that allows
them to be safely stored and efficiently retrieved when needed, carry out the
disposition of audit records under their control in accordance with Agency records
schedules and Federal regulations; and ensure that Contracting Officer/Agreement
Officer Representatives maintain audit recipient records on USAID-funded activities in
accordance with USAID records management policies and procedures found in ADS
502, The USAID Records Management Program.

3.2. Auditee

The auditee, for the purpose of this document, is a foreign organization recipient that
expends Federal awards which must be audited per USAID awards provisions under 2
CFR 200. This includes recipients that expend a combined total of $750,000 or more
in Federal awards during the recipient’s fiscal year either directly or through another
Federally funded contractor or recipient. This excludes fixed price contracts and fixed
amount awards, or recipients procuring audit services otherwise required or permitted
by their USAID award.

14 The Audit Firm list does not establish any obligation for USAID to pay or reimburse for the audit work.

8
In conformance with their USAID award, auditee responsibilities should be consistent
with 2 CFR 20015 and failure to comply may result in the disallowance of costs. The
auditee responsibilities include:

1. Procuring the audit work in accordance with 2 CFR 200 subpart F,

2. Preparing the financial statements including a Schedule of expenditures of

USAID awards16,

3. Follow-up, and corrective actions on audit findings, and

4. Provide the auditor with access to personnel, accounts, books, records,

supporting documentation, and other information as needed to perform the
required audit services.

4. Selection of an Auditor17

4.1. USAID List of Acceptable Audit Firms

USAID maintains in the Consolidated Audit and Compliance System (CACS), a list of
audit firms that have experience with USAID-funded audits or have been screened and
accepted by the cognizant Controller. The list provides general information about each
audit firm and their demonstrated ability to conduct a reliable audit that results in high-
quality audit reports in accordance with this Guide. The cognizant Controller should
provide the list to the recipients prior to beginning any USAID-funded audit work,
USAID advises recipients choose an independent auditor from the List of Acceptable
Audit Firms. Failure to use a USAID-accepted audit firm from the List of Acceptable
Audit Firms could result in an unacceptable audit report and disallowance of costs.

The process by which USAID examines a potential audit firm is further described in
ADS 591mab. USAID encourages rotating audits among eligible audit firms to help
maintain independence. Below are the baseline criteria for all audit firms analyzed for
the List of Acceptable Audit Firms:

1. Audit firm meets ability to produce written reports in English.

2. Audit firm has sufficient quality control program in place that meets the GAGAS
quality control and external peer review standards.

3. Audit firm is a good standing member of the AICPA or the country’s public
accounting organization (PAO), which complies with the statements of

15 2 CFR 200.508
16The Schedule of expenditures of USAID awards meet the 2 CFR 200.510(b) requirement for a Schedule of
expenditures of Federal awards.
17 2 CFR 200.509

9
 membership obligations of IFAC, or another internationally recognized standard
setting body including independence compliance.

4. Audit firm has been in operation at least three years, or its partners have
previous acceptable experience with USAID-funded audits.

5. Audit firm requires continuing professional education (CPE) meeting GAGAS

and required professional audit designation for audit staff.

6. Audit firm demonstrates that audits are performed in accordance with

professional standards, applicable legal and regulatory requirements, and issue
appropriate audit reports.

7. Other possible considerations:

a. Affiliation with an international audit firm.

b. Continuing Professional Education Program, differing from GAGAS.

c. Recent experience with USAID audits.

A firm may be noted for lacking certain criteria and determined not acceptable on the
USAID List of Acceptable Audit Firms. Auditors submitting unacceptable work or audit
firms that do not provide timely responses to USAID’s requests may also be noted and
excluded from the list. Audit firms may also be removed from the list if they have not
performed audits under this Guide for a period of five years. However, USAID will give
audit firms an opportunity to update their information before removing them or apply to
be reinstated on the list.

In conjunction with the List of Acceptable Audit Firms, the recipient’s selection of an
independent auditor should be based on factors such as the audit firm’s past
performance in terms of quality, timeliness, and ability to conduct audits in accordance
with professional auditing standards (see section 2.3 Compliance with Auditing
Standards).

4.2. Independent Audit Firms

Auditors and audit firms should be independent from the auditee during and for any
period that falls within the period covered by the financial statements. In accordance
with the GAGAS, independence comprises: (a) independence of mind which permits
the conduct of an engagement without being affected by influences that affect
professional judgment and (b) independence in appearance which is the absence of
circumstances that would cause a third party to conclude that the integrity, objectivity,
or professional skepticism had been compromised.

10
In addition and pursuant to 2 CFR 200.509(b), an auditor who prepares the indirect
cost proposal or cost allocation plan may not also be selected to perform the audit
required by this part when the indirect costs recovered by the auditee during the prior
year exceeded $1 million. This restriction applies to the base year used in the
preparation of the indirect cost proposal or cost allocation plan and any subsequent
years in which the resulting indirect cost agreement or cost allocation plan is used to
recover costs.

Since non-audit services that auditors provide can affect independence of mind and
appearance in periods after the non-audit services were provided, the recipient should
notify the USAID Operating Unit of any such circumstances.

4.3. Supreme Audit Institutions

The recipient country's principal government audit agency, often referred to as its
"Supreme Audit Institution" (SAI), may audit foreign public entities under this Guide.
However, SAI’s audit reports will only be accepted for USAID funds if the USAID
cognizant Controller, or designee, determines that the SAI:

● Complies with GAGAS or the IAASB standards and the related ISA, and
International Standards on Assurance Engagements in conjunction with
GAGAS.

● Complies with ISSAI issued by the INTOSAI for public-sector audits in

conjunction with GAGAS.

● Is in fact, in mind, and in appearance, independent of the government recipient

organizations to be audited and the executive branch of the government, and
substantially meets the independence requirements set forth in GAGAS.

● Does not participate in any way in pre-control, contract or transaction approval,

check signing, or other activity that is incompatible with the audit function.

● Maintains a professionally prepared and competent staff of duly qualified and

licensed certified public accountants, or equivalent, experienced in the
performance of financial audits and appropriately supervised by more
experienced auditors.

● Maintains a continuing program of staff training and professional development

for its audit staff.

● Agrees to perform audits pursuant to this Guide.

USAID may support SAIs in developing their auditing manuals, audit quality control
systems, and other audit needs by facilitating coordination between SAIs and other

11
resources, such as the U.S. GAO Center for Audit Excellence, before the SAI conducts
audits of USAID funds. The cognizant USAID Operating Units will consider assisting
SAIs if they manifest a desire to perform professional quality audits of USAID-financed
activities and the recipient government places a high priority upon this function.

In the event an SAI demonstrates an inability or unwillingness to perform audit work in

compliance with this Guide, USAID will not accept its reports until the SAI is capable of
improving its performance. If an SAI's audit reports are rejected, USAID may require
an audit by a professional audit firm or, at its discretion, make arrangements for an
audit on behalf of the foreign public entity in accordance with the standard audit
provisions in the USAID award(s).

5. Audits

5.1. Scope of Audit

A financial audit of USAID funds provided to recipients must be performed in

accordance with GAGAS, or ISA in conjunction with GAGAS, or ISSAI in conjunction
with GAGAS. The primary purpose of a financial statement audit is to provide an
opinion about whether an entity’s financial statements are presented fairly, in all
material respects, in accordance with applicable generally accepted accounting
principles or financial reporting standards. Reporting on financial audits performed in
accordance with GAGAS also includes reports on internal controls over financial
reporting and on compliance with provisions of laws, regulations, contracts, and grant
agreements that have a material effect on the financial statements.

If the recipient has a current negotiated indirect costs rate agreement18 (NICRA),
including provisional rates, the independent auditor must examine the recipient’s
organization-wide general purpose financial statements (i.e., balance sheet, income
statement, and where appropriate, cash flows statement). The financial statements
and the schedule of expenditures of USAID awards must be for the same audit
period.19

The independent auditor must determine whether the financial statements of the
recipient are presented fairly in all material respects in accordance with U.S. generally
accepted accounting principles (U.S. GAAP), or International Financial Reporting
Standards (IFRSs), or International Public Sector Accounting Standards (IPSAS). The
independent auditor must also determine whether the schedule of expenditures of
USAID awards is stated fairly in all material respects in relation to the recipient’s
financial statements as a whole.20

18 For additional help on indirect cost rates, see USAID’s Indirect Cost Rate Guide for Non-Profit Organizations.
19 2 CFR 200.510 (a) & (b)
20

12
For financial audits of awards without a current negotiated (including provisional)
indirect costs rate, the schedule of expenditures of USAID awards is the basic financial
schedule to be audited. The schedule of expenditures of USAID awards must not
include cost-sharing or matching (inclusive of in-kind) contributions provided from the
recipient’s own funds or in-kind.

5.2. Audit Objectives

The financial audit objectives must include the following and as such should be
reflected in the audit contract SOW (Appendix 1):

● Express an opinion on whether the SEFA for the USAID-funded programs

presents fairly in all material respects in relation to the recipient’s financial
statements as a whole and in revenues received, costs incurred, and assets,
commodities, and technical assistance directly procured with USAID funding for
the period audited in conformity with the terms of the award and generally
accepted accounting principles.

● Evaluate the recipient's internal controls related to the USAID-funded programs,

assess control risk, and identify significant deficiencies including material
weaknesses.

● Perform tests to determine whether the recipient complied, in all material

respects, with agreement terms (including cost-sharing or matching
contributions, and indirect costs rate, if applicable) and applicable laws and
regulations related to USAID-funded programs.

● Evaluate whether the recipient has met its cost-sharing or matching

contributions, if required by the agreement.

● If the recipient has a NICRA (including provisional), then perform a financial

audit of the recipient’s organization-wide general purpose financial statements,
expressing an audit opinion.

● Perform an audit of the indirect costs rate if the recipient has been authorized to
charge indirect costs to USAID using provisional rates and USAID has not yet
negotiated final rates with the recipient.

● When indirect costs are charged to USAID using either predetermined, fixed, or
de minimis 10 percent rate, the auditor must verify that the correct rate was
applied in accordance with the agreement with USAID.

● Determine if the recipient has taken adequate corrective actions on prior audit
report recommendations, if applicable.

13
 5.3. Schedule of Expenditures of USAID Awards

The recipient must accept the responsibility for the accuracy of the schedule of
expenditures of USAID awards before the audit commences regardless of whether the
recipient received assistance in the preparation of the schedule of expenditures from
the books and records maintained by the recipient.

The schedule of expenditure of USAID awards must reconcile to USAID provided fund
information, the accounting records, and bank statements of the recipient. All currency
amounts in the audit report must be stated in U.S. dollars. The exchange rate(s) used
must be indicated in the notes to the schedule of expenditures of USAID awards and
calculated for the rate at the time the local currency was disbursed to the recipient by
USAID.

In audits of recipients covering awards from more than one USAID Operating Unit, the
schedule of expenditures of USAID awards must separately disclose the financial
information (revenues, costs, etc.) for each award and program, and identify the USAID
Operating Units that provide funding. Each Operating Unit must be able to identify its
award in the audit report for resolution of audit findings with the recipient. The same
reporting principles apply when only one USAID award is covered by the audit. Auditors
must not express separate opinions on schedule of expenditures of each award or
program unless specifically requested to do so by USAID.

5.4. Cost-Sharing/Matching Schedule21

The audit should determine whether cost-sharing or matching contributions were

provided and accounted for by the recipient in accordance with the terms of the
agreements, if applicable. The auditors will review the cost-sharing or matching
contributions schedule to determine if the schedule is fairly presented in accordance
with the basis of accounting used by the recipient to prepare the schedule. The auditors
should question all cost-sharing or matching contributions that are either ineligible or
unsupported costs. In addition, for awards that present a cost-sharing or matching
contribution budget on an annual basis and on a life-of-project basis for closeout audits,
the auditors will review the cost-sharing or matching contributions schedule to
determine if these were provided by the recipient in accordance with the terms of the
agreement.

5.5. Indirect Cost Rates22

21 Leverage of non-USAID resources is different from cost-sharing or matching contributions. Pursuant to ADS
303.3.27 (Public-Private Partnerships) leveraging represents all non-USAID resources, excluding cost sharing,
expected to be applied to a program. Leveraging is limited to Public-Private Partnership awards.

22 For additional help on indirect cost rates, see An Indirect Cost Rate Guide for Non-Profit Organizations and
https://www.usaid.gov/india/partner-resources/infographic-de-minimis-rate-indirect-costs

14
The audit of the indirect cost rates should involve tests to determine whether the
distribution or allocation base and the indirect cost pools includes only items or costs
authorized by the USAID awards and applicable cost principles. These tests should
also confirm that the indirect cost rates are accurately calculated. Costs must be
consistently charged as either indirect or direct costs but may not be double charged or
inconsistently charged as both. In the case that the recipient has been authorized to
use provisional indirect cost rates, the audit must be performed to determine the actual
indirect costs rate for that year. If chosen, this methodology, once elected, must be
used consistently for all Federal awards until such time as the recipient chooses to
negotiate for a rate.

As further provided in Federal regulation (2 CFR 200.414), any foreign recipient that
does not have a current NICRA (including provisional) may elect to charge a 10 percent
de minimis rate of modified total direct costs. No documentation is required to justify the
10 percent de minimis indirect cost rate other than the approval of the rate in the award.
If chosen, this methodology, once elected, must be used consistently for all Federal
awards until such time as the recipient chooses to negotiate for a rate.

Additional information on the allocation and determination of indirect cost rates is

provided in 2 CFR 200 Appendix IV to Part 200 – Indirect (F&A) Costs Identification and
Assignment, and Rate Determination for Nonprofit Organization.

5.6. Audit Steps

Auditors must design audit steps and procedures in accordance with GAGAS to provide
reasonable assurance of detecting situations or transactions in which fraud or illegal
acts have occurred or are likely to have occurred. If such evidence exists, the auditors
must contact the appropriate USAID Operating Unit and should exercise due
professional care in pursuing indications of possible fraud and illegal acts so as not to
interfere with potential future investigations or legal proceedings.

Auditors must conduct their audit in accordance with the SOW (Appendix 1), obtain a
management representation letter (Appendix 4), and consult the reference materials
(Appendix 5). The SOW contains a list of 12 documents, as applicable, that must be
reviewed during the planning phase of the audit.

5.7. Internal Controls

The auditors must review and evaluate the recipient's internal controls related to USAID
programs to obtain a sufficient understanding of the design of relevant control policies
and procedures and whether those policies and procedures have been placed in
operation.

Auditors must follow the steps outlined in the SOW (Appendix 1) and identify any

15
significant deficiencies or material weaknesses in the design or operation of internal
controls.

● A material weakness is a deficiency, or combination of deficiencies, in internal

controls, such that there is a reasonable possibility that a material misstatement
of the entity’s financial statements will not be prevented or detected and
corrected on a timely basis.

● A significant deficiency is a deficiency, or combination of deficiencies, in internal

controls that is less severe than a material weakness but that is important
enough to merit attention by those charged with governance.

Any significant deficiencies or material weaknesses must be set forth in the report as
“findings”. Any other matters related to internal controls – such as suggestions for
improving operational or administrative efficiency of internal controls, or control
deficiencies that are not significant deficiencies or material weaknesses – may be
reported in a separate management letter to the recipient and referred to in the report
on internal control.

5.8. Compliance with Agreement Terms and Applicable Laws

Auditors must follow the reporting standards contained in GAGAS for reporting on
compliance which are based on the AICPA Professional Standards. The auditor's
report on compliance must set forth as findings all material instances of noncompliance
with agreement terms, and applicable laws and regulations, defined as instances that
could have a direct and material effect on the financial statements and/or schedule of
expenditures of USAID awards. In accordance with GAGAS, the auditor is not
responsible for preventing noncompliance and cannot be expected to detect
noncompliance with all laws and regulations.23 Nonmaterial instances of
noncompliance must be included in a separate management letter to the recipient and
referred to in the report on compliance. A copy of the management letter should be
provided to the cognizant USAID Operating Unit along with the audit report.

The auditor's report must include relevant information about identified or suspected
fraud based on sufficient, appropriate evidence obtained.24 Misstatements in the
financial statements can arise from either fraud or error. The distinguishing factor
between fraud and error is whether the underlying action that results in the
misstatement of the financial statement is intentional or unintentional. In presenting
material irregularities, illegal acts, or other noncompliance, auditors must continue to
follow the reporting standards contained in GAGAS. If the auditors conclude that
sufficient evidence of any known or likely fraud or illegal acts exists, regardless of
whether it is material to the financial statements, they must contact the USAID
cognizant Operating Unit and the OIG and exercise due professional care in pursuing

23 See AICPA AU-C Section 250, Consideration of Laws and Regulations in an Audit of Financial Statements.
24 See AICPA AU-C Section 240, Consideration of Fraud in a Financial Statement Audit.

16
indications of possible fraud and illegal acts to avoid interfering with potential future
investigations or legal proceedings.

5.9. Follow-up on Prior Audit Findings

The recipient is responsible for follow-up and corrective action on audit findings.
Auditors should evaluate whether the audited entity has taken appropriate corrective
action. The recipient must prepare a Summary Schedule of Prior Audit Findings
(SSPAF) to address audit findings from previous audit engagements as per 2 CFR
200.511. The corrective action plan and SSPAF must include findings relating to the
financial statements which are required to be reported in accordance with GAGAS.
When planning the audit, auditors should ask management of the audited entity to
identify previous audit findings including whether related recommendations have been
implemented. Auditors must follow their contract SOW (Appendix 1).

5.10. Closeout Audits

A closeout25 audit is an audit for an award that concluded during the period
audited. Pursuant to ADS 591, Financial Audits of USAID Contractors,
Recipients, and Host Government Entities, and the additional help in ADS
302sat, Guidance on Closeout Procedures for A&A Awards, closeout audits
require additional scope of the audit services, including but not limited to the
following:

● Review unliquidated advances to the recipient and pending

reimbursements by USAID.

● Ensure the recipient has returned any excess cash to USAID.

● Review final cost-sharing or matching contributions in accordance with

the terms of the agreement, if applicable.

● Ensure all assets (inventories, fixed assets, commodities, etc.)

procured with program funds were disposed of in accordance with the
terms of the agreements.

The auditors must determine whether an annex to the schedule of expenditures of

USAID awards showing the balances and details of final inventories of nonexpendable
property acquired under the awards is presented fairly in all material respects in relation
to the financial statements. This inventory must indicate which items were titled to the
U.S. Government and which were titled to other entities. These closeout audit
procedures must be performed for any award that expires during the period audited.

6. Audit Reporting
25 Closeout is defined in 2 CFR 200.16 and further explained in 2 CFR 200.343-344.

17
As required by the template audit contract SOW, the final audit report will be submitted
to the cognizant USAID Operating Unit as a portable document format (PDF) copy in
English and, if applicable, a PDF copy of the report in the recipient country’s official
language. The timeline for the audit reports must be consistent with the award
provisions and section 2.6 Audit Timeline of this Guide. The format and content of the
audit reports should closely follow the SOW (Appendix 1). The audit report must
specify the correct award number(s) of each award covered by the audit. The report
must contain, as applicable:

1. A title page, table of contents, transmittal letter, and a summary which includes
a background section.

2. The background section must state a general description of the USAID

programs audited, period covered, program objectives, clear identification of all
entities mentioned in the report, follow-up audit recommendations, whether
cost-sharing or matching contributions were required, and whether the recipient
has a USAID-authorized indirect cost rate.

3. The report must also include the objectives and scope of the financial audit,
clear explanation of the procedures performed and any scope limitations.

4. The report must summarize, as applicable, the audit results of the schedule of
expenditures of USAID awards, questionable costs, internal control, compliance
with agreement terms and applicable laws, indirect cost rates, status of prior
audit findings, review of the cost-sharing or matching contributions, and the
recipient’s management response to the audit and any findings.

The auditor’s report must also include the auditor’s opinion on the schedule of
expenditures of USAID awards, and the agreement terms and applicable laws (including
the schedule of cost-sharing or matching contributions and the indirect cost rates, if
applicable). A report on the internal control compliance must describe the scope of
testing and the results of the tests and if applicable, the recipient’s general purpose
financial statements on an organization-wide basis. The findings included in the reports
on internal controls and compliance related to USAID-funded programs must be
developed with all elements of the findings pursuant to the auditing standards and
include the following elements: condition, criteria, cause, effect, and an actionable
recommendation that corrects the cause and the condition, as applicable.

The report must also contain, after each recommendation, written comments of
responsible recipient officials concerning the auditor's findings and actions taken by the
recipient to implement the recommendations. When the auditors disagree with the
recipient comments opposing the findings, conclusions, or recommendations, they must
explain their reasons. Conversely, the auditors should modify their report if they find the
comments valid.

18
Contact the cognizant USAID Operating Unit for any additional information or
clarification on this Guide.

19
APPENDICES

The following appendices are examples that recipients and/or auditors can consider and
modify or exclude as needed.

APPENDIX 1: Standard Statement of Work for Financial Audits of Foreign

Organizations
APPENDIX 2: Schedules and Tables
APPENDIX 3: Template of Audit Agreement with Supreme Audit Institution
APPENDIX 4: Illustrative Management Representation Letter
APPENDIX 5: Reference Materials

20
Appendix 1: Standard Statement of Work for Financial Audits of Foreign
Organizations

I. BACKGROUND

On [date], the U.S. Agency for International Development (USAID), [Operating Unit]
(Operating Unit) approved the [program name and number] (program), which provided
[amount in U.S. Dollars] in [loan/grant] funds to [name of recipient] (recipient) for
[describe the time period of the award and in general terms the purposes of the program
and the principal line items and amounts budgeted, including cost sharing contributions,
direct payments and all related financial information of the program, as applicable].

[If recipient activities are financed by more than one program, include a similar
paragraph for each program.]

[Include a brief history of the recipient, its principal purposes and goals, location(s) of
activities to be audited, location(s) of accounting records and management.]

[The purpose of including complete data on the recipient/subrecipient and the

program(s) involved is to provide the auditor with all necessary information for them to
properly estimate their audit fees.]

II. TITLE

Audit of the schedule of expenditures of USAID awards (and/or audit of the General
Purpose Financial Statements). In the case of closeout audits, the title must specify
that it is a closeout audit, as in: Closeout Audit of the USAID Resources Managed by
[name of recipient] Under Program [program number and name] for the period from
[date] to [date].

III. OBJECTIVES

The objective of this engagement is to conduct a financial audit of the USAID

resources managed by the recipient/subrecipient under program [program number and
name] from [date] to [date] in accordance with:

● USAID Financial Audit Guide for Foreign Organizations (hereafter Guide);

● U.S. Generally Accepted Government Auditing Standards26 (GAGAS or the

Yellow Book); hereafter referred to as GAGAS, issued by the Comptroller
General of the United States Government Accountability Office; and, as
26 GAGAS incorporates the American Institute of Certified Public Accountants (AICPA), Professional Standards that
include Statements on Auditing Standards (SASs). The SASs include an “AU-C” identifier which represents
section(s) in the Codification of SASs. The Codification was designed for clarity and converged the standards with
the International Standards on Auditing (ISAs). See AICPA Clarified Statements on Auditing Standards
(https://www.aicpa.org/research/standards/auditattest/clarifiedsas.html)

21
 applicable;

● International Standards on Auditing (ISA) issued by the International Auditing

and Assurance Standards Board (IAASB), in conjunction with GAGAS; and

● The International Standards of Supreme Audit Institutions (ISSAIs) issued by

the International Organization of Supreme Audit Institutions (INTOSAI) for
public-sector audits, in conjunction with GAGAS.

The financial audit must include a specific audit of all the recipient’s USAID-funded
programs. The schedule of expenditures of USAID awards is the financial schedule to
be audited in case of no indirect costs or de minimis 10% rate. When the recipient has
a NICRA then the organization’s general purpose financial statement must be audited in
addition to the SEFA. All amounts in the financial audit report must be stated in U.S.
dollars. The auditors should indicate the exchange rate(s) used in the notes to the
schedule of expenditures of USAID awards.

A. Audit of USAID Funds

Auditors must design steps and procedures in accordance with GAGAS. A financial
audit of the funds provided by USAID must be performed in accordance with GAGAS, or
other approved standards where applicable, and accordingly includes such tests of the
accounting records as deemed necessary under the circumstances. The specific
objectives of the audit of the USAID funds are to:

● Express an opinion on whether the schedule of expenditures of USAID awards

presents fairly in all material respects in relation to the recipient’s financial
statements as a whole, in accordance with the terms of the agreements and
generally accepted accounting principles.

● Evaluate and obtain a sufficient understanding of the recipient's internal controls

related to the USAID-funded programs, assess control risk, and identify
reportable conditions, including material weaknesses. This evaluation must
include the internal controls related to required cost-sharing contributions.

● Perform tests to determine whether the recipient complied, in all material

respects, with agreement terms (including cost-sharing/matching contributions, if
applicable) and applicable laws and regulations related to USAID-funded
programs. All material instances of noncompliance and all illegal acts that have
occurred or are likely to have occurred must be identified. Such tests must
include the compliance requirements related to any required cost-sharing
contributions.

In addition, if applicable:

22
 ● Determine if the recipient has taken adequate corrective action on prior audit
report recommendations.

● Review cost-sharing/matching contributions to determine whether cost-

sharing/matching contributions were provided and accounted for by the recipient
in accordance with the terms of the agreements. The auditors will review the
cost-sharing/matching table to determine if the computation is fairly presented in
accordance with the basis of accounting used by the recipient to prepare the
schedule. The auditors should question all cost-sharing/matching contributions
that are either ineligible or unsupported costs.

● Perform an audit of the indirect cost rate(s) if the recipient has been authorized to
charge indirect costs to USAID using provisional rates. If so, the schedule of
expenditures of USAID awards should be reconciled to the USAID funds included
in the general purpose financial statements by a note to the schedule of
expenditures of USAID awards. If the recipient does not have a USAID
authorized indirect cost rate, this fact must be disclosed in the final audit report.

The audit of the general purpose financial statements must be performed in accordance
with GAGAS if the recipient has been authorized to charge indirect costs to USAID
using provisional rates. The objective of this audit is to express an opinion on whether
the general purpose financial statements present fairly, in all material respects, the
results of its operations for the year then ended, in conformity with generally accepted
accounting principles.

IV. AUDIT SCOPE

The auditor must use the following steps as the basis for preparing audit programs.
They are not all-inclusive or restrictive in nature and do not relieve the auditor from
exercising due professional care and judgment. The steps must be modified to fit local
conditions and specific program design, implementation procedures, and agreement
provisions, which may vary from program to program. Any limitations in the scope of
work must be communicated as soon as possible to the USAID cognizant Operating
Unit.

A. Pre-Audit Document Review

Following is a list of documents applicable to different USAID programs. The auditor

must review the applicable documents considered necessary to perform the audit:

1. The agreement between USAID and the recipient.

2. The sub-agreements between the recipient and other implementing entities, as

applicable.

23
 3. Contracts and subcontracts with third parties, if any.

4. The budgets, implementation letters, and written procedures approved by

USAID.

5. USAID Automated Directives System Chapter 636, Program Funded

Advances.

6. 2 CFR 200 Subpart F Audit Requirements, 2 CFR 200 Subpart E Cost

Principles, and 2 CFR 700 on Cost Principles.

7. Federal Acquisition Regulation (FAR), Part 31, Contract Cost Principles and
Procedures.

8. USAID Acquisition Regulation (AIDAR), which supplements the FAR.

9. Mandatory Standard Provisions for Non-U.S. Nongovernmental Grantees (ADS

Chapter 303, Grants and Cooperative Agreements to Non-Governmental
Organizations).

10. Standard Provisions Annex for Agreements with Foreign Governments (ADS
Chapter 350, Grants to Foreign Governments).

11. All program financial and progress reports; charts of accounts, organizational
charts; accounting systems descriptions; procurement policies and procedures;
and receipt, warehousing, and distribution procedures for materials, as necessary
to successfully complete the required work.

12. Any previous audits, financial reviews, etc., that directly relate to the objectives of
the audit.

B. Schedule of Expenditures of USAID Awards

The auditor must examine the schedule of expenditures of USAID awards 27 for USAID
programs including the budgeted amounts by category and major items; the revenues
received from USAID for the period covered by the audit; the costs reported by the
recipient as incurred during that period; and the commodities and technical assistance
directly procured by USAID for the recipient's use. The schedule of expenditures of
USAID awards must include all USAID funds identified by each specific program or
agreement. The revenues received from USAID less the costs incurred, after

27 Schedule of Expenditures of USAID awards is a financial schedule that presents USAID recipient's revenues, costs
incurred, cash balance of funds (after considering reconciling items), and commodities directly procured by USAID
that were provided by USAID agreements. The opinion on the Schedule of Expenditures of USAID awards must
comply with Statement on Auditing Standard SAS No. 62 (AU623).

24
considering any reconciling items, must reconcile with the balance of cash-on-hand or in
bank accounts.28 The schedule of expenditures of USAID awards must not include
cost-sharing/matching contributions provided from the recipient's own funds or in-kind,
which is to be provided in a separate schedule; see Section C.

The audit firm may not prepare or assist the recipient in preparing the schedule of
expenditures of USAID awards when the same audit firm will then perform an audit. If
a third party prepares or assists the recipient in preparing the schedule of expenditures
of USAID awards from the books and records maintained by the recipient, then the
recipient must accept the responsibility for the statement’s accuracy before the audit
commences.

The schedule of expenditures of USAID awards must separately identify those revenues
and costs applicable to each specific USAID agreement. The audit must evaluate
program implementation actions and accomplishments to determine whether specific
costs incurred are allowable, allocable, and reasonable under the agreement terms and
applicable cost principles, and to identify areas where fraud and illegal acts have
occurred or are likely to have occurred as a result of inadequate internal control. At a
minimum, the auditors must:

1. Review direct and indirect costs billed to and reimbursed by USAID and costs
incurred but pending reimbursement by USAID, identifying and quantifying any
questioned costs. All costs that are not supported with adequate documentation
or are not in accordance with the agreement terms must be reported as
questioned. Questioned costs that are pending reimbursement by USAID must
be identified in the notes to the schedule of expenditures of USAID awards as not
(yet) reimbursed by USAID.

2. Questioned costs must be presented in the schedule of expenditures of USAID

awards in two separate categories: ineligible and unsupported costs. Ineligible
costs are costs that are explicitly questioned because they are unreasonable,
prohibited by the agreements or applicable laws and regulations, or not program
related. In addition, if a recipient was required to place USAID funds in an
interest-bearing account but did not, then the imputed interest that would have
been earned is also classified as an ineligible cost. Unsupported costs are not
supported with adequate documentation or did not have required prior approvals
or authorizations. All questioned costs resulting from instances of
noncompliance with agreement terms and applicable laws and regulations must
be included as findings in the report on compliance. Also, the notes to the
schedule of expenditures of USAID awards must briefly describe the questioned
costs and must be cross-referenced to any corresponding findings in the report
on compliance.

28 If the recipient does not receive any advances from USAID, i.e., it operates on a reimbursement basis, then the
recipient will not hold any balances of USAID funds.

25
3. Review general and program ledgers to determine whether costs incurred were
properly recorded. Reconcile direct costs billed to, and reimbursed by, USAID to
the program and general ledgers.

4. Review the procedures used to control the funds, including their channeling to
contracted financial institutions or other implementing entities. Review the bank
accounts and the controls on those bank accounts. Perform positive
confirmation of balances, as necessary.

5. Determine whether advances of funds were justified with documentation,

including reconciliations of funds advanced, disbursed, and available. The
auditors must ensure that all funding received by the recipient from USAID was
appropriately recorded in the recipient's accounting records and that those
records were periodically reconciled with information provided by USAID.

6. Determine whether program income was added to funds used to further eligible
project or program objectives, to finance the non-Federal share of the project or
program, or deducted from program costs, in accordance with USAID
regulations, other implementing guidance, or the terms and conditions of the
award.

7. Review procurement procedures to determine whether sound commercial

practices including competition were used, reasonable prices were obtained, and
adequate controls were in place over the qualities and quantities received.

8. Review direct salary charges to determine whether salary rates are reasonable
for that position, in accordance with those approved by USAID when USAID
approval is required and supported by appropriate payroll records. Determine if
overtime is charged to the program and whether it is allowable under the terms of
the agreements. Determine whether allowances and fringe benefits received by
employees are in accordance with the agreements and applicable laws and
regulations. The auditors must question unallowable salary charges in the
schedule of expenditures of USAID awards.

9. Review travel and transportation charges to determine whether they are

adequately supported and approved. Travel charges that are not supported with
adequate documentation or not in accordance with agreements and regulations
must be questioned in the schedule of expenditures of USAID awards.

10. Review commodities (e.g., supplies, materials, vehicles, equipment, food

products, tools, etc.) procured by the recipient as well as those directly procured
by USAID for the recipient's use. The auditors must determine whether
commodities exist or were used for their intended purposes in accordance with
the terms of the agreements, and whether internal control procedures exist and
have been placed in operation to adequately safeguard the commodities. As part

26
 of the procedures to determine if commodities were used for intended purposes,
the auditors must perform end-use reviews for an appropriate sample of all
commodities based on the internal control risk assessment (see section IV.D.
“Internal Controls” of this Statement of Work). End-use reviews would
normally include site visits to verify that commodities exist or were used for their
intended purposes in accordance with the terms of the agreements. When
conducting end-use reviews, the auditors must ensure that commodities are
marked in accordance with grant or contract requirements. The cost of all
commodities whose existence or proper use in accordance with the terms of the
agreements cannot be verified and must be questioned in the schedule of
expenditures of USAID awards (the auditor should determine the cost of
commodities based on supporting documentation available from the recipient or
USAID, as appropriate).

11. Review technical assistance and services procured by the recipient. The
auditors must determine whether technical assistance and services were used
for their intended purposes in accordance with the terms of the agreements. The
cost of technical assistance and services not properly used in accordance with
the terms of the agreements must be questioned in the schedule of expenditures
of USAID awards.

If the recipient contracted the technical assistance and services through a U.S.
contractor, the auditors are still responsible for determining whether technical
assistance and services were used for their intended purposes in accordance
with the terms of the agreements. However, the auditors are not responsible for
performing additional audit steps for the costs incurred under the technical
assistance and services agreements if either USAID or a cognizant U.S.
Government agency is responsible for contracting for audits of these costs.

12. For final closeout audits, review unliquidated advances to the recipient and
pending reimbursements by USAID. Ensure that the recipient has returned any
excess cash to USAID. Also, ensure that all assets (inventories, fixed assets,
commodities, etc.) procured with program funds were disposed of in accordance
with the terms of the agreements. The auditors must determine whether an
annex to the schedule of expenditures of USAID awards showing the balances
and details of final inventories of nonexpendable property acquired under the
agreements is presented accurately in all material respects in relation to the
financial statements. This inventory must indicate which items were titled to the
U.S. Government and which were titled to other entities. These closeout audit
procedures must be performed for any award that expires during the period
audited.

The schedule of expenditures of USAID awards must separately disclose the financial
information (revenues, costs, commodities, and technical assistance) for each
agreement, and must identify the USAID Operating Unit that provided funding for each

27
agreement. Questioned costs and internal control and compliance findings of any
audits of subrecipients must be reported in the recipient’s financial audit using the same
treatment and procedures as the recipient’s own questioned costs and findings.

The auditors must express a single opinion on the schedule of expenditures of USAID
awards that includes more than one agreement with USAID. Auditors must not express
separate opinions on the schedule of expenditures of USAID awards of each agreement
or program unless specifically requested to do so by the USAID Operating Unit.

C. Cost-Sharing/Matching Contribution Schedule

USAID awards may require contributions by the recipient. USAID and recipient awards
may establish a life-of-project budget or an annual budget for the cost-sharing/matching
contributions. In either case, the review consists principally of inquiries of recipient
personnel and analytical procedures applied to financial data supporting the cost-
sharing/matching contribution table.

For an agreement with a life-of-project budget for cost-sharing/matching contributions, it

is not possible to determine whether the contributions have been made as required until
the agreement ends. Nonetheless, USAID and the recipient need reliable information to
monitor actual cost-sharing/matching contributions throughout the life of the agreement.

The auditors will review the cost-sharing/matching contributions schedule to determine if

the schedule is fairly presented in accordance with the basis of accounting used by the
recipient to prepare the schedule. The auditors must question all cost-sharing/matching
contributions that are either ineligible or unsupported costs. An ineligible cost is
unreasonable, prohibited by the agreements or applicable laws and regulations, or not
program related. An unsupported cost lacks adequate documentation or does not have
required prior approvals or authorizations. All questioned costs must be briefly
described in the notes to the cost sharing/matching contributions. In addition, material
questioned costs must be included as findings in the report on compliance. Notes to the
cost-sharing/matching contributions schedule must be cross-referenced to the
corresponding findings in the report on compliance. Also, significant deficiencies in
internal controls related to cost-sharing/matching contributions must be set forth as
findings in the report on internal control. In addition, for closeout audits, the auditors will
review the cost-sharing/matching contributions schedule to determine if the recipients
provided such contributions in accordance with the terms of the agreement. If actual
contributions were less than budgeted contributions, the shortfall will be identified in the
appropriate column of the cost sharing/matching contributions schedule.

D. Internal Controls

The auditors must review and evaluate the recipient's internal controls related to USAID
programs to obtain a sufficient understanding of the design of relevant control policies
and procedures and whether those policies and procedures have been placed in

28
operation. The auditor's understanding of the internal controls must be documented in
the audit documentation files.

Auditors must prepare the report required identifying any significant deficiencies or
material weaknesses in the design or operation of internal control. A material weakness
is a deficiency, or combination of deficiencies, in internal controls, such that there is a
reasonable possibility that a material misstatement of the entity’s financial statements
will not be prevented or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or combination of deficiencies, in internal controls that is less
severe than a material weakness but that is important enough to merit attention by
those charged with governance. Any significant deficiencies or material weaknesses
must be set forth in the report as “findings”. Any other matters related to internal
controls – such as suggestions for improving operational or administrative efficiency,
effectiveness, or control deficiencies that are not significant deficiencies or material
weaknesses – may be reported in a separate management letter to the recipient and
referred to in the report on internal control. A copy of the management letter should be
provided to the cognizant USAID Operating Unit along with the audit report.

The major internal control components to be studied and evaluated include, but are not
limited to, the controls related to each revenue and expense account on the schedule of
expenditures of USAID awards. The auditors must:

1. Obtain an understanding of the design of the internal controls related to USAID

programs and determine whether they have been placed in operation.

2. Assess inherent risk, control risk, and determine the detection risk. Inherent risk
is the susceptibility of an assertion, such as an account balance, to a
misstatement that could be material, either individually or when aggregated with
other misstatements, assuming that there are no related controls. Control risk is
the risk that a material misstatement (either individually or when aggregated with
other misstatements) could occur in a relevant assertion and will not be
prevented or detected on a timely basis by the entity's internal controls.
Detection risk is the risk that the auditor will not detect a material misstatement
that exists in an assertion. Detection risk is based upon the effectiveness of an
auditing procedure and the auditor’s application of that procedure.

3. Summarize the risk assessments for each assertion in the audit documentation
file. The risk assessments must consider the following broad categories under
which each assertion should be classified: (a) existence or occurrence; (b)
completeness; (c) rights and obligations; (d) valuation or allocation; and (e)
presentation and disclosure. At a minimum, the audit documentation files must
identify the name of the account or assertion, the account balance or the amount
represented by the assertion, the assessed level of inherent risk (high, moderate,
or low), the assessed level of control risk (high, moderate, or low), the combined
risk (high, moderate, or low), and a description of the nature, extent, and timing

29
 of the tests performed based on the combined risk. These summary audit
documentation files must be cross-indexed to the supporting audit documentation
files that contain the detailed analysis of the fieldwork. If control risk is evaluated
at less than the maximum level (high), then the basis for the auditor's conclusion
must be documented in the audit documentation files.

4. Evaluate the control environment, the adequacy of the accounting systems, and
control procedures. Emphasis must be placed on the policies and procedures
that pertain to the recipient’s ability to record, process, summarize, and report
financial data consistent with the assertions embodied in each account of the
schedule of expenditures of USAID awards. This evaluation must include, but
not be limited to, the internal control systems for:

a. Ensuring that charges to the program are proper and supported;

b. Managing cash on hand and in bank accounts;

c. Procuring goods and services;

d. Managing inventory and receiving functions;

e. Managing personnel functions such as timekeeping, salaries, and

benefits;

f. Managing and disposing of commodities (such as vehicles, equipment,

and tools, as well as other commodities) purchased either by the
program or directly by USAID; and

g. Ensuring compliance with agreement terms and applicable laws and

regulations that collectively have a material impact on the schedule of
expenditures of USAID awards. The results of this evaluation must be
contained in the audit documentation section described in section IV.E.
of this Statement of Work and presented in the compliance report.

5. Evaluate internal controls established to ensure compliance with cost

sharing/matching contribution requirements, if applicable, including both
provision and management of the contributions.

6. Include in the study and evaluation other policies and procedures that may be
relevant if they pertain to data the auditors use in applying auditing procedures.
This may include, for example, policies and procedures that pertain to non-
financial data that the auditor uses in analytical procedures.

E. Compliance with Agreement Terms and Applicable Laws and Regulations

30
In fulfilling the audit requirement to determine compliance with agreement terms and
applicable laws and regulations related to USAID programs, the auditors must follow the
reporting standards contained in GAGAS for reporting on compliance which incorporate
the AICPA Professional Standards. The auditor's report on compliance must set forth
as findings all material instances of noncompliance, defined as instances that could
have a direct and material effect on the schedule of expenditures of USAID awards,
and/or the financial statements, as applicable. Nonmaterial instances of noncompliance
must be included in a separate management letter to the recipient and referred to in the
report on compliance. A copy of the management letter should be provided to the
cognizant USAID Operating Unit along with the audit report.

The auditor's report must include relevant information about identified or suspected
fraud based on sufficient, appropriate evidence obtained that a fraud or illegal act either
has occurred or is likely to have occurred. In reporting material fraud, illegal acts, and
abuse or other noncompliance, the auditors must place their findings in proper
perspective. In presenting material irregularities, illegal acts, or other noncompliance,
auditors must follow the reporting standards contained in GAGAS. If the auditors
conclude that sufficient evidence of any known or likely fraud or illegal acts exists,
regardless of whether it is material to the financial statements, they must contact the
USAID cognizant Operating Unit or OIG and exercise due professional care in pursuing
indications of possible fraud and illegal acts to avoid interfering with potential future
investigations or legal proceedings.

In planning and conducting the tests of compliance the auditors must:

1. Identify the agreement terms and pertinent laws and regulations and determine
which of those, if not observed, could have a direct and material effect on the
schedule of expenditures of USAID awards. The auditors must:

a. List all standard and program-specific provisions contained in the

agreements that cumulatively, if not observed, could have a direct and
material effect on the schedule of expenditures of USAID awards;

b. Assess the inherent and control risk that material noncompliance could
occur for each of the compliance requirements;

c. Determine the nature, timing and extent of audit steps and procedures to
test for errors, fraud, and illegal acts that provide reasonable assurance of
detecting both intentional and unintentional instances of noncompliance
with agreement terms and applicable laws and regulations that could have
a material effect on the schedule of expenditures of USAID awards; and

d. Prepare a summary audit documentation file that adequately identifies

each of the specific compliance requirements included in the review, the
results of the inherent, control and (detection) risk assessments for each

31
 compliance requirement, the audit steps used to test for compliance with
each of the requirements based on the risk assessment, and the results of
the compliance testing for each requirement. The summary document
should be cross-indexed to detail audit documentation that support the
facts and conclusions contained in the summary document.

2. Determine if payments have been made in accordance with agreement terms

and applicable laws and regulations.

3. Determine if funds have been expended for purposes not authorized or not in
accordance with applicable agreement terms. If so, the auditor must identify
these costs as questioned in the schedule of expenditures of USAID awards.

4. Identify any costs not considered appropriate, classifying and explaining why
these costs are questioned.

5. Determine whether commodities, whether directly procured by the recipient or

directly procured by USAID for the recipient’s use, exist or were used for their
intended purposes in accordance with the agreements. Ensure that commodities
are marked in accordance with grant or contract requirements. If not, the cost of
such commodities must be questioned.

6. Determine whether any technical assistance and services, whether procured by

the recipient or directly procured by USAID for the recipient’s use, were used for
their intended purposes in accordance with the agreements. If not, the cost of
such technical assistance and services must be questioned.

7. Determine if the amount of cost-sharing/matching funds was calculated and

accounted for as required by the agreements or applicable cost principles.

8. Determine if the cost-sharing/matching funds were provided according to the

terms of the agreements and quantify any shortfalls.

9. Determine whether those who received services and benefits were eligible to
receive them.

10. Determine whether the recipient's financial reports (including those on the status
of cost-sharing contributions) and claims for advances and reimbursement
contain information that is supported by the books and records.

11. Determine whether the recipient held advances of USAID funds in interest-
bearing accounts, and whether the recipient remitted to USAID any interest
earned on those advances, with the exception of up to $500 a year that the
recipient may retain for administrative expenses. If the recipient was required to
place USAID funds in an interest-bearing bank account but did not, then the

32
 auditor should determine the amount of interest that was foregone by the
recipient, and this amount should be classified as ineligible costs.

F. Follow-Up on Prior Audit Findings

The auditors must review the status of actions taken on audit findings reported in prior
audits of USAID-funded programs. Auditors should evaluate whether the audited entity
has taken appropriate corrective action and prepared a Summary Schedule of Prior
Audit Findings (SSPAF) to address audit findings from previous audit engagements as
per 2 CFR 200.511. The corrective action plan and SSPAF must include findings which
are required to be reported in accordance with GAGAS. When planning the audit,
auditors should ask management of the audited entity to identify previous audit findings,
including whether related recommendations have been implemented. Auditors should
use this information in assessing risk and determining the nature, timing, and extent of
current audit work, including determining the extent to which testing the implementation
of the corrective actions is applicable to the current audit objectives.

The auditors must describe the scope of their work on prior audit findings in the
summary section of the audit report. The auditors should refer to the most recent
recipient audit report for the same award (for a follow-up audit) or other USAID awards
(for an initial audit). When corrective action has not been taken and the deficiency
remains unresolved for the current audit period, the auditors need to briefly describe the
prior finding and status and show the page reference to where it is included in the
current report. If there were no prior findings, the auditors must include a note to that
effect in this section of the audit report.

G. Indirect Cost Rates

The auditors must determine the actual indirect cost rates for the year if the recipient
has used provisional rates to charge indirect costs to USAID. The audit of the indirect
cost rates must include tests to determine whether the:

1. Distribution or allocation base includes all costs that benefited from indirect
activities,

2. Distribution or allocation base is in compliance with the governing USAID NICRA,

if applicable,

3. Indirect cost pool includes only costs authorized by the USAID agreements and
applicable cost principles,

4. Indirect cost rates obtained by dividing the indirect cost pool by the base are
accurately calculated, or

5. Costs included in this calculation reconcile with the total expenses shown in the

33
 recipient’s audited general purpose financial statements.

The results of the audit of the indirect cost rate must be presented in a schedule of
computation of indirect cost rate. This schedule should contain: a listing of costs
included in each indirect cost pool, a list of cost exclusions based on cost principles,
the distribution base, and the calculation and the resultant indirect cost rate calculation.
The costs in the schedule should reconcile with the total expenses shown in the
recipient’s general purpose financial statement as per guidance from 2 CFR 200.

H. General Purpose Financial Statements

Where provisional indirect costs are authorized, an audit of the general purpose
financial statements is needed, in addition to the audit of SEFA, to ensure sound
financial management and provide reasonable assurance that all costs have been
correctly included in the indirect cost rate calculation. Auditors should examine the
recipient’s general purpose income statement on an organization-wide basis, balance
sheet, and if applicable, the statement of cash flows. The objective of this audit is to
express an opinion on whether those statements are presented fairly in all material
respects in accordance with generally accepted accounting principles.

I. Other Audit Responsibilities

The auditors must perform the following steps:

1. Hold entrance and exit conferences with the recipient. The cognizant USAID
Operating Unit must be notified of these conferences in order that USAID
representatives may attend, if deemed necessary.

2. During the planning stages of an audit, communicate information to the auditee

regarding the nature and extent of planned testing and reporting on compliance
with laws and regulations and internal controls over financial reporting. Such
communication should state whether the auditors plan to provide opinions on
compliance with laws and regulations and internal controls over financial
reporting. This communication should be in the form of an engagement letter.

3. Institute quality control procedures to ensure that sufficient appropriate evidence

is obtained through inspection, observation, inquiries, and confirmations to afford
a reasonable basis for an opinion regarding the agreement(s) under audit. While
auditors may use their standard procedures for ensuring quality control, those
procedures must, at a minimum, ensure that:

a. Audit reports and audit documentation are reviewed by an auditor,

preferably at the partner level, who was not involved in the audit. This
review must be documented.

34
 b. All quantities and monetary amounts involving calculations are footed
and cross-footed.

c. All factual statements, numbers, conclusions, and monetary amounts

are cross-indexed to supporting audit documentation.

4. The auditor must ascertain, before preparing its proposal for the audit
engagement (or if this is not possible, at the earliest opportunity during the
engagement itself), whether the recipient ensured that audits of its subrecipients
were performed to ensure accountability for USAID funds passed through to
subrecipients. If subrecipient audit requirements were not met, the auditors
should immediately notify the cognizant USAID Operating Unit and consider
whether they can audit the subrecipient costs themselves. If, after consultation
with the cognizant USAID Operating Unit, the auditors conclude that a restriction
on the scope of the audit exists and the restriction cannot be removed, then the
auditors should consider modifying their opinion and any costs that have not
been audited as required must be questioned as unsupported costs.

5. Obtain a management representation letter. See Appendix 4 of the Guide for an

illustrative management representation letter.

V. AUDIT REPORTS

The recipient should submit to the cognizant USAID Operating Unit a portable
document format (PDF) copy of the audit report in English and , if considered
appropriate, a PDF copy of the report in the recipient country’s official language. The
format and content of the audit reports should closely follow this Statement of Work.
The audit report must specify the correct award number(s) of each award covered by
the audit.

The report must contain:

1. Title page (close-out audits must be clearly titled),

2. Table of contents,

3. Transmittal letter, and

4. Summary, which includes:

a. Background section with:

i. A general description of the USAID programs audited,

ii. Period covered,

35
 iii. Program objectives,

iv. Clear identification of all entities mentioned in the report,

v. Follow-up of prior audit recommendation section,

vi. Cost-sharing/matching contributions explanation, and

vii. Indirect cost rate details;

b. Objectives and scope of the financial audit and clear explanation of the
procedures performed and any scope limitations;

c. Brief summary of audit results on the:

i. Schedule of expenditures of USAID awards,

ii. Questionable costs,

iii. Internal control,

iv. Compliance with agreement terms and applicable laws,

v. Indirect cost rates,

vi. Status of prior audit recommendations, and if applicable,

vii. General purpose financial statements on an organization-wide

basis;

d. A brief summary of the results of the review of cost-sharing/matching

contributions; and

e. A brief summary of the recipient’s management comments regarding

its view on the audit and results and findings.

5. The auditor’s report includes the following:

a. The auditor's report on the schedule of expenditures of USAID

awards, identifying any material questioned costs not fully supported
with adequate records or not eligible under the terms of the
agreements (see Appendix 2 of the Guide). The report must be in
conformance with the standards for reporting in GAGAS and must
include the auditor's opinion on whether the schedule of expenditures

36
 of USAID awards presents fairly, in all material respects, in
accordance with the terms of the agreements and in conformity with
generally accepted accounting principles or other basis of accounting.

b. A report on internal control including significant deficiencies and

material weaknesses in the recipient's internal control. Deficiencies
related to improving operational or administrative efficiency or internal
control, or control deficiencies that are not significant deficiencies or
material weaknesses – may be communicated through a separate
management letter that should be sent with the audit report.

c. A report on the recipient's compliance with agreement terms and

applicable laws and regulations related to USAID-funded
programs. Nonmaterial instances of noncompliance should be
communicated to the recipient in a separate management letter that
should be sent with the audit report. All questioned costs resulting
from instances of noncompliance must be included as findings in the
report on compliance.

d. A report and a table on the cost-sharing/matching contributions

identifying the budgeted amounts required by the agreements; any
cost-sharing/matching contribution shortfalls; and notes to the cost-
sharing/matching contributions providing an explanation on the basis
for questioned costs and shortfalls, if applicable. The notes must be
cross-referenced to the corresponding findings, if the questioned
costs are material, in the report on compliance.

e. A report on the audit of the indirect cost rate(s), if the recipient has
been authorized to charge indirect costs to USAID using provisional
rates and USAID has not yet negotiated final rates (Appendix 2) with
the recipient, along with a report on the audit of the general purpose
financial statements.

The audit firms are expected to exercise independent professional judgment throughout
the audit engagement, including in reporting on questioned costs. Findings that involve
monetary effect must:

1. Be quantified and included as questioned costs in the schedule of expenditures

of USAID awards, the Auditor’s Report on Compliance, and cost
sharing/matching contributions schedule (cross-referenced) if applicable.

2. Be reported without regard to whether the conditions giving rise to them were
corrected.

3. Be reported whether the recipient does or does not agree with the findings or

37
 questioned costs.

4. Contain enough relevant information to expedite the audit resolution process

(e.g., number of items tested, size of the universe, error rate, corresponding U.S.
dollar amounts, etc.).

The reports must also contain, after each recommendation, pertinent views of
responsible recipient officials concerning the auditor's findings and actions taken by the
recipient to implement the recommendations. If possible, the auditor should obtain
written comments. When the auditors disagree with management comments opposing
the findings, conclusions, or recommendations, they must explain their reasons
following the comments. Conversely, the auditors should modify their report if they find
the comments valid.

Any evidence of fraud or illegal acts that have occurred, or are likely to have occurred,
must be included in a separate written report if deemed necessary by USAID. This
report must include an identification of all questioned costs as a result of fraud or illegal
acts, without regard to whether the conditions giving rise to the questioned costs have
been corrected or whether the recipient does or does not agree with the findings and
questioned costs.

You may contact the cognizant USAID Operating Unit for any additional information or
clarification on the Guide.

VI. RELATIONSHIPS AND RESPONSIBILITIES

The client for this contract is the [recipient’s name if hired by the recipient]. The
program coordinator is [name of recipient’s point of contact].

The audit firm will work in coordination with the USAID cognizant Operating Unit. The
liaison for audit concerns will be [USAID’s point of contact] or his designee, and the
liaison for information and assistance from the USAID Operating Unit will be the USAID
cognizant Controller or his/her designee.

The USAID Operating Unit may meet with the independent audit firm at the beginning of
the audit to explain any financial/compliance areas of concern that they want
emphasized and provide any advice concerning the performance of the audit. The
USAID Operating Unit should provide the following information to the auditors:

1. A list of all payments made for assets, equipment, materials, and technical
assistance purchased by USAID from third parties for the period being audited
with copies of vouchers with supporting documentation.

2. A list of all advances and recoveries made during the audit period.

38
 3. A list of all disbursements made to the recipient.

The USAID Operating Unit may also provide written comments on the draft audit report
concerning the facts and conclusions contained in the report in order to obtain the best
possible end product. The USAID Operating Unit should attend the exit conference for
the same purpose. However, the USAID Operating Unit comments on the draft report
and at the exit conference will not be binding on the audit firm.

The independent audit firm must properly maintain and store the working papers for a
period of three years from the completion of the audit. During this three-year period, the
audit firm must immediately provide the working papers when requested by the USAID
Operating Unit or USAID OIG. Audit firms that are nonresponsive or do not provide
timely responses to questions raised by the USAID Operating Unit or USAID OIG will be
temporarily or permanently excluded from performing additional USAID audits.

VII. TERMS OF PERFORMANCE

The audit must begin as soon as practicable after the signing of the audit contract, and
from the audit start date, the audit firm must submit to USAID: a draft indexed audit
report in English within 90 calendar days, and a final audit report within 120 calendar
days. The audit firm must submit to the USAID Operating Unit [number] copies of the
final report in English and [number] copies of the report in the official language of the
recipient country [if deemed necessary by the Operating Unit].

It is the responsibility of the recipient to ensure that all records are available, all
accounting entries and adjustments are made, and all other necessary steps are taken
to make it possible for the audit firm to perform the work necessary to be able to present
the final audit report within 120 calendar days.

Payment modalities should be determined by the cognizant USAID Operating Unit.

Appendix 2: Schedules/Tables

The following illustrative schedules/tables are for reference purposes.

2.1.C Illustrative Schedule of Expenditures of USAID Awards

2.4.C Illustrative Cost-Sharing Table

2.5.B Schedule of Computation of Indirect Cost Rate

Additional Information

39
If the audit firm conducting the audit lacks a satisfactory continuing education program
and/or external quality control review program, it must be disclosed in the second
paragraph of the final Audit Report, the Internal Control Report, and the Compliance
Report as applicable:

● “Except for not having a fully satisfactory continuing education program and/or
not having an external quality control review by an unaffiliated audit organization,
we conducted our audit in accordance with GAGAS (or ISA in conjunction with
GAGAS, or ISSAI in conjunction with GAGAS) as GAGAS is issued by the
Comptroller General of the United States....” (continue with the standard
language for this paragraph).

● If the audit firm does not meet the CPE requirement but have some education, it
should be disclosed. “We do not have a continuing education program that fully
satisfies the requirement set forth in GAGAS. However, our current program
provides for at least (number) hours of continuing education and training every
two years. We are taking appropriate steps to implement a continuing
education program that fully satisfies the requirement.”

● “We did not have an external quality control review by an unaffiliated audit
organization as required by GAGAS, since no such program is offered by
professional organizations in (name of country). We believe that the effects of
this departure from GAGAS are not material because we participate in the
(name of U.S. affiliate) worldwide internal quality control review program which
requires our office to be subjected, every three years, to an extensive quality
control review by partners and managers from other affiliate offices.”

If the auditor issues a management letter for internal deficiency or compliance issues
that are not material, a paragraph to that effect should be included in the appropriate
report as follows:

● We noted certain matters involving internal control and its operation that we have
reported to the management of (name of recipient) in a separate letter dated
August 15, 20XX.

● We noted certain immaterial instances of noncompliance that we have reported

to the management of (name of recipient) in a separate letter dated August 15,
20XX.29

29 Exclude this paragraph if there are no immaterial instances of noncompliance.

40
 2.1.C Illustrative Schedule of Expenditures of USAID Awards
(Name of recipient)
Schedule of Expenditures of USAID Awards
From 1/1/20X1 to 12/31/20X3
(Single award, 3rd year presented with cumulative amounts, in USD)

Cumulative
Actual Revenues
Agreement Budget Revenues and Questioned Costs
and Expenditures
Elements Expenditures Notes
1/1/20X1 to 1/1/20X3 to 1/1/20X1 to
Ineligible Unsupported
12/31/20X3 12/31/20X3 12/31/20X3
Revenues
USAID Contribution 3,554,399 984,389 1,912,680 Note 1
Program Income -
Interest Income 100 100
Total Revenues 3,554,399 984,489 1,922,680
Costs
Salaries 817,512 180,666 450,152 36,000 Note 3
Transportation 142,176 31,420 152,521
Program activities 2,185,955 483,086 900,582 14,350
Other costs 408,756 90,333 220,541
Total costs 3,554,399 785,505 1,723,796

Cash Balance 198,984 198,984 Note 5

Schedule of Expenditures of USAID Awards

(Multiple awards, 1st year presented, no cumulative amounts, in USD)

Actual Actual
Revenues and Revenues and
Budget Expenditures Budget Expenditures Questioned Costs
Elements 01/1/20X1 to 03/15/20X1 to Notes
Agreement A Agreement B
12/31/20X1 12/31/20X1
Agreement A Agreement B Ineligible Unsupported
Revenues
USAID
3,554,399 984,389 2,300,550 1,245,405 Note 1
Contribution
Program Income - 245,829
Total Revenues 3,554,399 984,389 2,300,550 1,491,234
Costs
Salaries 817,512 180,666 529,127 213,085 36,000 Note 3
Transportation 142,176 31,420 92,022 37,058
Program activities 2,185,955 483,086 1,414,838 569,772 14,350
Other costs 408,756 90,333 264,563 106,543
Total costs 3,554,399 785,505 2,300,550 926,458

41
Cash Balance 198,884 564,776 Note 5

Notes to the Schedule of Expenditures of USAID Awards

Note 1: Accounting Policies

The following are the principal accounting policies applied by the management of the
program:

a. Basis of Preparation of the Schedule of Expenditures of USAID Awards

The recipient {Name} has a budgetary account held by registration of revenues and
costs month by month. The accumulation of the revenue and cost generates the
schedule of expenditures of USAID awards, which is audited for the period closed as of
12/31/20XX.

The schedule of expenditures of USAID awards revenue corresponds to flow of funds

received from USAID.

Cost of the schedule of expenditures of USAID awards corresponds to funds disbursed

in payment of the costs incurred.

b. Basis of Preparation of Budget

Budget of the project presented at the schedule of expenditures of USAID awards has
been prepared in accordance with the budget approved by USAID. This budget is
expressed in USD.

c. Conversion to USD

The schedule of expenditures of USAID awards provided to the auditor by the recipient
is stated in USD and the exchange rate indicated in the notes. The USD exchange rate
is calculated based on the rate at the time the funds were disbursed by USAID.

Note 2: Revenues Received from USAID

From {period duration} the recipient {Name} received from USAID/X a total amount of
{amount in USD and local currency}. This amount is detailed by the following
receptions:
DATE NATURE Amounts in Amounts in
Local Currency USD
1/10/20X1 Remittance by check Bank transfer received from USAID, Advance
of January 20X1
1/29/20X1 Transfer Bank transfer received from USAID, Advance
of June 20X1

42
Total received from

Note 3: Expenses Incurred and Liquidated

From {period duration} the recipient {Name} incurred and liquidated a total amount of
{amount in USD and local currency} in expenditures.

Note 4: Reconciliation with Accounting Balances

The amounts recorded by USAID are consistent with amounts recorded by the recipient
and the Schedule of expenditures of USAID awards’ balance reconciles with the bank
statements.

Note 5: Fund Balance Reconciliation

As of December 31, 20XX, the bank balance reconciled with the balance recorded in
the accounting books and the schedule of expenditures of USAID awards of the
Recipient.

Notes

Additional information or supporting schedules detailing revenues, costs incurred,

outstanding fund balances, and commodities directly procured by USAID for each
individual agreement should be reported.

All questioned costs will be listed here. All material questioned costs resulting
from instances of noncompliance with agreement terms and applicable laws and
regulations should be included as findings in the report on compliance.

The notes to the schedule of expenditures of USAID awards should briefly

describe both material and immaterial questioned costs and should be cross-
referenced to any corresponding findings in the report on compliance.

43
2.4.C Illustrative Table Presenting Cost-Sharing/Matching Contributions

Cost-Sharing/Matching Table
From January 1, 20X1 to December 31, 20X3
All Amounts in USD
Cumulative
Budget Contributions Contributions Unsupporte
Description Contributions Ineligible Notes
Contributions in FY 20X2 in FY 20X3 d
as of 12/31/X3
Cash 10,000 5,000 5,000 10,000 - - Note 1
Land for
sewage 25,000 35,972 27,508 63,480 - - Note 3
treatment
Transportatio
n
15,000 26,360 - 26,360 - - Note 4
Note 4
Other costs 76,250 5,725 60,525 66,250 - 9,243 and 5
Note
Total 126,250 73,057 93,033 166,090 - 9,243 2

44
Notes to the Cost-Sharing Schedule

Note 1:

a. Exchange Rate

The cost-sharing schedule is stated in USD. The conversion of the local currency in
USD used in exchange is 1 USD = 0.XX local currency.

b. Cash and In-Kind Contributions

The contributions of the Recipient Agreement # {number} were cash and in-kind
contributions as required per the agreement. Cash and in-kind contributions are
itemized separately on the Cost-Sharing Schedule.

Note 2: Shortfall/Surplus of Contributions

The recipient contributed more than what was required in the Agreement. At the end of
December 20XX, the contributions of the recipient exceeded the planned budget by
32%. The figure below shows the achievements announced by the project
management in relation to the budget:

Cumulative
Description Budget in USD Contributions as of %
XX/XX/20X3
Cash 10,000 10,000 100%
Land for sewage treatment 25,000 63,480 254%
Transportation 15,000 26,360 176%
Other costs 76,250 66,250 87%
Total 126,250 166,090 132%

Note 3: In-Kind Contribution Valuation

Among contributions of the recipient, a field dedicated to the construction of the sewage
has been donated. The value of this plot of land was estimated by an appraisal by a
sworn expert from the government at $63,480.

Note 4: Detail of Contributions

All supporting documentation of in-kind contributions was reviewed to validate amounts

contributed. Details of contributions by project management are presented as follows:

Project team transportation:

45
 Cost/Day Number
Contributions in USD
In USD of days
Fees for supply of vehicle with driver 48.63 542.00 26,360.0
0
Total 410.96 542.00 26,360.0
0

Contributions Cost/Day in Number of Amounts in

USD days USD
Fees for supply of vehicle with driver 48.63 542 26,360
Total 410.96 542 26,360

Detail of other contributions:

Cost in
Activities
USD
Travel, transportation, and reception of Ambassador’s visit. 9,243

Contribution of the population in the development of the access track to the

57,007
sewage treatment station.

Total 66,250

Note 5: Unsupported Questioned Costs

We have identified one material instance of noncompliance, as follows: The recipient

did not have proper supporting documentation for the event related to the Ambassador’s
visit. Justification was not provided and there were no receipts/invoices to support
these costs. A finding is included in the report on compliance.

46
2.5.B Illustrative Schedule of Computation of Indirect Cost Rate
(Name of recipient) Schedule of Computation of Indirect
Cost Rate

For the Year Ended December 20XX

Verification (A-B) = C+D $413,522 $413,522

Indirect Cost Pool: Modified Total Direct Costs

Indirect Cost Rate Computation: Total Indirect Costs/Modified Total Direct Costs
133,019/280,503 = 47.42%

1. The costs of capital expenditures, sub-contracts/sub-grants are distorting items

and excluded from the computation. These costs are $30,000 for vehicles and
$150,000 sub-grants.

2. Ineligible costs are excluded.

3. The recipient total expenses ($646,560) as per the organization general purpose
income statement.

4. The allocation base is “Total direct costs excluding capital expenditures; and sub-
contracts/sub-grants”.

47
 5. Insurance costs for officers are $18,200. The organization is identified as
beneficiaries for the officers’ insurance. There is also $6,400 for fire insurance.

Appendix 3: Template of Audit Agreement with Supreme Audit Institution

The Agency for International Development (USAID) and the (title of the host country's
Supreme Audit Institution -- hereinafter referred to as the SAI) agree that the SAI may
perform or contract for audits of USAID funding agreements with the government of
(name of country).

USAID and the SAI agree that the SAI will perform audits in accordance with U.S.
Government Auditing Standards (GAGAS) or International Standards of Supreme Audit
Institutions (ISSAIs) in conjunction with GAGAS.

USAID and the SAI may agree that the SAI can contract an independent public
accounting firm to perform the audit. If an accounting firm performs the audit it must be
in accordance with GAGAS and be supervised by the SAI. USAID may finance these
audit contracts. The audit firms and contracts must be approved by USAID before the
contract is entered into.

USAID and the SAI must jointly prepare an annual schedule of audits to be performed
or contracted by the SAI. The schedule of audits must contain the following information:

● Names of the governmental institutions to be audited.

● Identifying numbers of USAID agreements to be covered by the audits.

● Fiscal year to be covered by the audits.

● Name of the auditors (SAI or public accounting firm).

● Name of the entity in charge of supervising the audits (SAI, public accounting
firm, or individual contractor).

Standard statements of work provided by USAID must be used in performing audits of

governmental organizations as per USAID standard statement of work which is an
integral part of this agreement. USAID may expand the scope of work to allow the
review of specific areas that may be of particular interest to USAID for ensuring proper
accountability over resources provided to the recipient and may meet with the SAI or its
contractor at the beginning of the audit to explain any financial or compliance areas of
concern contained in the statement of work that USAID wants to emphasize. USAID
must approve the statement of work before audit work begins.

The scope of audits must include, at a minimum, a report on the schedule of

expenditures of USAID awards for the USAID-funded programs, a report on internal

48
control related to the USAID-funded programs, and a report on compliance with
agreement terms and applicable laws and regulations related to the USAID-funded
programs. If USAID or the OIG does not accept an audit report because of deficiencies
in the work of the SAI or its contractor, the auditors will perform any additional audit
work at no additional cost to USAID.

The SAI or its contractor must properly maintain audit working papers for a period of
three years from the completion of the audit. During this three-year period, the SAI or
its contractor must immediately provide the working papers when requested by USAID
or the OIG.

Signed Date
USAID Operating Unit Representative

Signed Date
Supreme Audit Institution

49
Appendix 4: Illustrative Management Representation Letter

(Date)

XYZ & CO. (Independent Auditor)

Address of Independent Auditor

We are providing this letter in connection with your audit(s) of the (identification of
financial statements) of (name of entity) as of (dates) and for the (periods) for the
purpose of expressing an opinion as to whether the (consolidated) financial
statements present fairly, in all material respects, the financial position, results of
operations, and cash flows of (name of entity) in conformity with [accounting principles
generally accepted in the United States of America (U.S. GAAP)] [International
Financial Reporting Standards (IFRSs)] or [International Public Sector Accounting
Standards (IPSAS)]. We confirm that we are responsible for the fair presentation in
the (consolidated) financial statements of financial position, results of operations, and
cash flows in conformity with generally accepted accounting principles.

Certain representations in this letter are described as being limited to matters that are
material. Items are considered material, regardless of size, if they involve an
omission or misstatement of accounting information that, in the light of surrounding
circumstances, makes it possible that the judgment of a reasonable person relying on
the information would be changed or influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief, (as of date of auditor's report),
the following representations made to you during your audit(s).

1. The financial statements referred to above are fairly presented in conformity with
accounting principles generally accepted in the United States of America (U.S.
GAAP) [International Financial Reporting Standards (IFRSs)] or [International
Public Sector Accounting Standards (IPSAS)] .

2. We have made available:

a. Financial records and related data.

b. Minutes of the meetings of stockholders, directors, and committees of

directors, or summaries of actions of recent meetings for which minutes
have not yet been prepared.

3. There have been no communications from regulatory agencies concerning non-

compliance with or deficiencies in financial reporting practices.

4. There are no material transactions that have not been properly recorded in the
accounting records underlying the financial statements.

50
5. We believe that the effects of the uncorrected financial statement misstatements
summarized in the accompanying schedule are immaterial both individually and in
the aggregate, to the financial statements taken as a whole.

6. We acknowledge our responsibility for the design and implementation of programs

and controls to prevent and detect fraud.

7. We have no knowledge of any fraud or suspected fraud affecting the entity

involving (a) management, (b) employees who have significant roles in internal
control or (c) others where the fraud could have a material effect on the financial
statements.

8. We have no knowledge of any allegations of fraud or suspected fraud affecting the

entity received in communications from employees, former employees, analysts,
regulators, or others.

9. We have complied with all aspects of contracts and agreements that could have a
material effect on the schedule of expenditures of USAID awards in the event of
noncompliance.

51
Appendix 5: Reference Materials

1. U.S. Government Auditing Standards may be obtained from the U.S.

Government Accountability Office (https://www.gao.gov/yellowbook)

2. 2 CFR Part 200 - Uniform Administrative Requirements, Cost Principles and

Audit Requirements for Federal Awards
Subpart F - Audit Requirements (§§ 200.500 - 200.521)
Subpart E - Cost Principles (§§ 200.400 - 200.475)

3. 2 CFR Part 700 - Uniform Administrative Requirements, Cost Principles and

Audit Requirements for Federal Awards:

4. USAID Automated Directives System (ADS)

5. Code of Federal Regulations (CFR)

● Title 48 - Federal Acquisition Regulations System Chapter 1

● Chapter 7 - Agency for International Development Acquisition Regulations

(AIDAR)

6. Mandatory Standard Provisions for Non-U.S. Nongovernmental Grantees (ADS

Chapter 303, Grants and Cooperative Agreements to Non-Governmental
Organizations).

7. Standard Provisions Annex for Agreements with Foreign Governments (ADS

Chapter 350, Grants to Foreign Governments).

8. The Statements on Auditing Standards (SASs) may be of interest:

https://www.aicpa.org/research/standards/auditattest/sas.html

9. The Codification of Statements on Auditing Standards (SASs) (contained in

AICPA Professional Standards)
https://www.aicpa.org/research/standards/auditattest/clarifiedsas.html

591maa_101123

52