INTERACTION: AMERICAN COUNCIL FOR VOLUNTARY INTERNATIONAL ACTIONNon-Profit

Finding 2022-003: Payroll Allocations Information on the Federal Programs: 98.001 Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation): 2 CFR 200.430 Compensation – personal services, section (i) indicates that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed, and that such records be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Condition: InterAction has a timekeeping system in place that provides for employees to record hours worked to specific cost objectives, including to US Government grants. We reviewed the allocation system during the audit, and noted that it automatically and accurately calculates values to be charged to each project reflective of the time recorded by employees. However we noted that in several cases the allocation amounts as per the timekeeping system were different from the amounts ultimately recorded within InterAction's general ledger. While the differences were not significant, these discrepancies indicate a deficiency in the internal controls around recording of salary expenditures to projects. Cause: The primary cause appears to be human error, and the result of manual recordkeeping. Effect or Potential Effect: Salary expenditures that are not charged in accordance with the standards referenced above may be questioned or disallowed by the donor. Questioned Costs: Undetermined Context: Our procedures included testing a sample of 40 salary transactions. We noted variances of the nature described above for 36 of the 40 samples tested. The issue appears to be systemic. Identification as a Repeat Finding, if Applicable: N/A. Recommendation: We recommend that management revisit its procedures for transferring data from the timekeeping system to the general ledger and implement proper internal controls to ensure that the amounts of salary expenditures charged to grants in the general ledger reconcile to the amounts calculated by the timekeeping system.

Condition: During our testing, we noted InterAction did not maintain support for their review of the search for suspension and debarment. InterAction did not have effective controls to ensure vendors were not suspended or debarred. Questioned Costs: None Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of procurement, suspension, and debarment. 2 CFR Part 180.220, states that recipients of federal funds are prohibited from contracting with or making sub awards under covered transactions to parties that are suspended or debarred. ?Covered transactions? include those procurement contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria. When a non-federal entity enters into a covered transaction with an entity at a lower tier, the nonfederal entity must verify that the entity is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by: (1) checking the Excluded Parties List System (EPLS) maintained by the General Services Administration (GSA) and available at https://www.sam.gov/portal/public/SAM, (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity InterAction should have internal controls designed and effectively operating to ensure compliance with those provisions. Context: For both vendors tested we noted that documentation related to suspension and debarment verification to ensure the vendor was not on the suspended or debarred vendor list maintained by the General Services Administration was not maintained and InterAction could not confirm that verifications were performed. However our testing did not identify any vendors that had been suspended or debarred. Effect: CLA noted no instances of noncompliance with the provisions of procurement, suspension, and debarment; however, the lack of effective internal controls over these compliance requirements provides an opportunity for noncompliance. Cause: The policies and procedures surrounding suspension and debarment verification were not consistently followed as designed. Repeat Finding: N/A Recommendation: We recommend InterAction ensure consistent application of their policies and procedures so that an adequate verification process is in place to review potential contractors to determine they are not suspended or debarred.

Condition: During our testing, we noted InterAction did not maintain support of the required cost analysis for small purchases during the procurement process. Questioned Costs: None Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of procurement, suspension, and debarment. 2 CFR Part 200.320(b), states that procurement of small purchases are those relatively simple and informal procurement methods for securing services, supplies, or other property. Price or rate quotation must be obtained from an adequate number of qualified sources. InterAction should have internal controls designed and effectively operating to ensure compliance with those provisions. Context: For one of six vendors tested we noted that documentation of the required cost analysis for small purchases during the procurement process was not maintained and InterAction could not confirm that cost analysis was performed. Effect: The lack of effective internal controls over these compliance requirements provides an opportunity for noncompliance. Cause: The policies and procedures surrounding procurement were not consistently followed as designed. Repeat Finding: N/A Recommendation: We recommend InterAction ensure consistent application of their procurement policies and procedures so that cost analysis for small purchases is performed and documented.

Condition: During our testing, we noted InterAction was not able to produce audit evidence of the review and approval of the cash drawdowns and SF-425 submissions. Questioned Costs: None Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of internal controls. Uniform Grant Guidance requires compliance with the provisions of internal controls. 2 CFR Part 200.303, states that recipients of federal funds are required to establish and maintain effective internal control over the Federal awards to provide reasonable assurance that the recipient of Federal funds is in compliance with Federal statutes, regulations and the terms and conditions of the Federal award. InterAction should have internal controls designed and effectively operating to ensure compliance with those provisions. Context: For four of five SF-425?s tested we noted that documentation evidencing the performance of a review of the SF-425 occurred prior to submission was not maintained. Effect: The lack of effective internal controls over these compliance requirements provides an opportunity for noncompliance. Cause: The policies and procedures surrounding financial reporting (SF-425) were not consistently followed as designed. Repeat Finding: N/A Recommendation: CLA recommends InterAction ensure consistent application of their policies and procedures to ensure adequate review and approval over financial reporting is performed and documented.

Condition: During our testing, we noted InterAction did not prepare or submit an indirect and fringe cost rate proposal on a timely basis. Questioned Costs: None Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of cost principles. 2 CFR Appendix IV to Part 200, C.2.c, Negotiation and Approval of Indirect Cost Rates, Unless approved by the cognizant agency for indirect costs in accordance with ?200.414 Indirect (F&A) costs paragraph (g) of this Part, organizations that have previously established indirect cost rates must submit a new indirect cost proposal to the cognizant agency for indirect costs within six months after the close of each fiscal year. USAID Indirect Cost Rate Guide for Non-Profit Organizations, Submission of Indirect Cost Rate Proposal, Grantees that already have a NICRA are required to submit their audited financial statements and single audit in accordance with 2 CFR 200, Subpart F, Section 512(a)(1) and certified indirect cost rate proposal to USAID within the earlier of 30 days after receipt of the auditor?s report, or nine months after the close of each fiscal year. Generally, an organization uses the prior year?s final indirect cost rates as the new provisional (until amended) rates when an organization believes the final rates represent a reasonable estimate of the next years expected actual rates. If an organization believes the future rates will be materially different than the previous finalized rates, it should propose the more accurate provisional rates with adequate supporting documentation and rationale. InterAction should have internal controls designed and effectively operating to ensure compliance with those provisions. Context: InterAction did not prepare or submit an indirect and fringe cost rate proposal for 2019 on a timely basis. The 2018 final indirect and fringe rates were used to charge these costs to Federal awards in 2019. Effect: The lack of effective internal controls over these compliance requirements provides an opportunity for noncompliance. Cause: The policies and procedures surrounding the submission of the indirect cost rate proposal were not consistently followed as designed. Repeat Finding: N/A Recommendation: CLA recommends InterAction ensure consistent application of their policies and procedures to ensure timely submission of an indirect and fringe cost rate proposal each year. We further recommend InterAction submit their calculation of indirect and fringe rates for 2019 based on actual costs as soon as possible.