ngo financial newsletter published since 1998 · 2011-10-01 · far revision proposes to eliminate...
TRANSCRIPT
NGO FINANCIAL NEWSLETTER (TM) Published since 1998
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In the October 2011 issue:
FY 2012 APPROPRIATIONS
Senate Appropriations Committee Restores $2.26 Billion in Bilateral Economic
Assistance in Fiscal 2012 Spending Bill
FUNDING OPPORTUNITIES
USAID and Jordan Sign $359.3 Million Strategic Objective Grant Agreement
IN THE NEWS
Wartime Contracting Commission Singles Out USAID for Not Suspending the Louis
Berger Group
White House Proposes to Cap Top Contractor Executive Pay at $199,700, Following
Congressional Request for OMB to Publish Limit for 2011
A&A POLICIES
State Department and USAID Implementing the Partner Vetting System Pilot Program in
Five Countries
RULES AND REGULATIONS
FAR Revision Proposes to Eliminate 10% Price Advantage for SDBs and Educational
Institutions Due to Constitutional Ruling
FINANCIAL MANAGEMENT AND COST CONTROL
OMB Wants Federal Agencies to Pay Small Businesses Within 15 Days
15 Critical Safeguards to Prevent and Detect Fraud and Embezzlement at Overseas Field
Offices
AUDIT AND AUDIT RESOLUTION
RIG/San Salvador Finds 3 “Material” Weaknesses and 8 “Significant” Weaknesses in
NGO/Haiti Field Officers’ Financial Management Controls
OIG/Afghanistan Lays into International NGO for Multiple Disallowances
DCAA Planning on Completing Incurred Cost Audits for Contractor Fiscal Years 2009
and Earlier
GAO Releases Interim Version of Government Auditing Standards, Effective for Periods
Ending on or After 12/15/2012
PCAOB Seeks Comments to Make Audit Reports More Revealing
2
CASES AND DECISIONS
Ex-USAID Controller Pleads Guilty to Theft of Government Property and Unpaid Taxes,
Also to Pay $1.9 Million for Unreported Foreign Bank Account
Four Federal Court Decisions in September Uphold Limit on Contractor Liability
Two Interesting Civilian Board of Contract Appeals Decisions Released
U.S. TAXES
11 States Join IRS and the Department of Labor to Crack Down on Employee
Misclassification Abuses
IRS Offers Employee Reclassification Agreement
Final IRS Regs Implement Form 990 Changes for Tax-Exempt Organizations
IRS Issues Guidance on Tax Treatment of Cell Phones
NEWS BRIEFS
Tetra Tech Acquires Pro-Telligent
ARTICLE
Current Postings of USAID’s Overseas Contracting/Agreement Officers
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SENATE APPROPRIATIONS COMMITTEE RESTORES $2.26 BILLION IN
BILATERAL ECONOMIC ASSISTANCE IN FISCAL 2012 SPENDING BILL
The Senate Appropriations Committee reported out on September 22nd
the State, Foreign
Operations and Related Programs Appropriations Act for FY 2012 (S. 1601), at $53.5
billion including $21.059 billion for bilateral economic assistance. These levels are $6.3
billion overall and $2.26 billion for bilateral assistance more than contained in the House
appropriations subcommittee’s draft of its spending bill for fiscal 2012, which was
reported in a press release on July 26th
, on which no action has been taken.
The Senate spending bill is broken down for fiscal 2012 as follows:
Senate
President Obama’s House Draft Committee
Budget Request Version Recommendations
3
Total $59.6 billion $47.2 billion $53.5 billion
Total Bilateral Assistance $23.7 billion $18.8 billion $21.059 billion
Enduring Operations 22.5 17.7 19.588
Overseas Contingency Ops 1.2 1.1 1.471
Global Health Programs $8.7 billion $7.114 billion $7.9 billion
Development Assistance 2.9 2.068 2.550
Economic Support Fund (ESF) 7.185 4.068 5.551
USAID’s Operating Expenses 1.503 900 million 1.357
Assistance for Europe, etc. $626 million $626 million $626 million
International Disaster Assistance 860 million 757 million 1.0 billion
Transitional Initiatives 56 million 54.89 million 58.5 million
Complex Crises Fund 75 million - 75 million
Development Credit Authority 50 million 30 million 50 million
Democracy Fund - 114 million 114 million
State Department:
Migration and Refugee Assistance $1.6 billion $1.496 billion $1.8 billion
Millennium Challenge Corporation $1.125 billion $898.2 million $898.2 million
Perhaps for the first time ever, the Senate Committee recommends a $391 million
reduction in funding for HIV/AIDS, to $5.25 billion, with $250 million of this amount
coming as a reduction in funding for the Global Fund to Fight HIV/AIDS, Malaria and
Tuberculosis.
The Committee also recommends $1.3 billion for the Feed the Future Initiative. The
Committee recommends language in Section 7025 to help facilitate the local purchase of
food in order to speed delivery in emergencies, bolster the incomes of local producers,
and, importantly, reduce the cost to U.S. taxpayers.
Under the category of ESF, the Committee recommends that $2.073 billion go to
Afghanistan, $400 million to the West Bank/Gaza, $360 million to Jordan, $250 million
to Egypt, $200 million to Iraq, $179 million to Colombia for alternative/institution
building, and $146 million to Haiti. Reflecting recent developments, Libya is to receive
$20 million for democracy, governance, rule of law, transitional justice and human rights
activities there.
$1.25 billion is recommended to be spent by USAID for climate change and
environmental programs. $315 million is earmarked for water sanitation and supply
projects under P.L. 109-121. $745 million is being proposed for funding Education with
$200 million for higher education and $22.5 million for the American Schools and
Hospitals Abroad Program.
4
The Committee also recommends $50 million for a new transition fund, to be called the
“Middle East/North Africa Transition Fund,” to provide the Department of State and
USAID with the flexibility necessary to respond quickly to the dynamic events in this
region. The Middle East Partnership Initiative (MEPI) would receive $70 million for
traditional regional programs managed by MEPI.
As part of the budget, the Committee has made authority and funding available for
establishing enterprise funds for Egypt and, separately, for Jordan.
The Committee recommends funding for “Development Innovation Ventures” to support
initiatives with the potential for scale-up that could have wide impact and lead to cost
savings, while leveraging private sector support.
In the accompanying report, S. Rpt 112-85, the Committee strongly supports initiatives
by USAID to reform its “cumbersome” procurement process. It also recommends
funding for 35 additional civilian service positions to support procurement reform.
The Committee continues to recommend funds to implement a Partner Vetting System
pilot program. Going further, the Committee directs the Secretary of State and USAID
Administrator to consult on plans to expand PVS beyond a pilot program.
The Committee recommends in Section 7027 to make permanent law, through
amendment to the Foreign Assistance Act, a long-standing waiver authority for activities
conducted through nongovernmental organizations.
The Committee expressed its disappointment that the budget request for democracy,
governance, human rights, development and economic growth programs in the East Asia
and Pacific region totals only one-eighth of the amount requested for such programs in
Africa and the Near East, respectively, and reflects a 30% decrease from the previous
fiscal year.
The recommended funding levels in this bill will ultimately have to be resolved with the
lower levels contained in the House Foreign Operations Appropriations subcommittee’s
draft bill.
USAID AND JORDAN SIGN $359.3 MILLION STRATEGIC OBJECTIVE GRANT
AGREEMENT
Jordan and the United States signed five grant agreements under which USAID will
provide Jordan with $359.3 million within the 2011 U.S. regular grant aid.
The funds will be used to support the budget and the sectors of health and education and
enhance economic growth and opportunities as well as governance. The Agreements
were signed by Minister of Planning and International Cooperation Ja'far Hasan, the U.S.
Ambassador to the Kingdom Stuart E. Jones and the Acting USAID Mission in Jordan
Kevin Rushing.
5
WARTIME CONTRACTING COMMISSION SINGLES OUT USAID FOR NOT
SUSPENDING THE LOUIS BERGER GROUP
Despite USAID's more aggressive use of suspensions and debarments and the
Department of Justice entering into a deferred prosecution agreement after allegations of
massive fraud, USAID, in the Commission on Wartime Contracting’s final report, was
singled out for failing to suspend Louis Berger Group (LBG) after the Inspector General
found senior executives had conspired to charge the government inflated overhead costs.
The company paid a $69.3 million settlement for the accounting scheme, but continues to
bid on Federal work.
According to the report, LBG ranked #10 among the top U.S. contractors performing
services in support of contingency operations in Iraq and Afghanistan, with $2.3 billion
in grants and contracts awarded to Berger between fiscal 2002 and 2011.
It said: “[w] hen agencies fail to suspend contractors from participating in the Federal
marketplace despite chronic misconduct, criminal behavior, or repeated poor
performance, the deterrent threat is lost.”
In general, the Report criticizes USAID’s overly decentralized structure for contract
management in a contingency operations setting. It cited the collapse of the Kabul Bank
as the gravest example showing that “processes and rules that work elsewhere may be
unsuitable in the midst of wartime contracting. Problems include over-reliance on
contractors, missteps in developing requirements, lack of oversight of projects, inability
to conduct quality assurance in a hostile environment, funds wasted, and schedules
slipped.”
The report also tallied the value of contingency contracts and grants at $192.5 billion
over this nine year period with DoD awarding $166.6 billion in contracts, State: $12.2
billion in contracts and $400 million in grants, and USAID awarding $8.4 billion in
contracts and $4.9 billion in assistance.
WHITE HOUSE PROPOSES TO CAP TOP CONTRACTOR EXECUTIVE PAY AT
$199,700, FOLLOWING CONGRESSIONAL REQUEST FOR OMB TO PUBLISH
LIMIT FOR 2011
In the White House’s Debt-Ceiling Plan released on September 19th
, the Administration
stated that “it believes the Government is reimbursing too much for contractor
executives.” Thus, it proposes to abolish the formula used to annually set the maximum
reimbursable top executive compensation on cost-reimbursement contracts.
Instead, the Administration proposes to tie the cap to the salary of senior-most Federal
executives -- specifically, Executive Schedule Level I, currently $199,700. It is the
Administration’s belief that setting the cap at this level will bring “greater parity between
Federal and contractor executives’ compensation.”
6
Such a limit would severely crimp the reimbursement of most large, USAID-funded
contractor executives’ compensation. In early research we conducted of the top-five
executives’ compensation publicly disclosed by USAID contractors at
http://www.usaspending.gov, not one of them was paid under $200,000.
In fact, the head of the infrastructure development company awarded the largest amount
of funding by USAID was paid over $1.2 million and its Executive VP received no less
than $900,000. Another USAID contractor CEO received over $800,000, two were paid
over $700,000, with executive salaries then quickly tailing off into the $300’s and $200’s
for medium-sized and smaller firms. (These salaries are comparable to those paid to the
CEOs of USAID-funded recipients, as reported to IRS on their Form 990.)
Of course, such firms could take the difference between the salaries paid to their top
execs and the amount reimbursed out of their profits. The proposal is likely to be causing
migranes over at the Professional Services Council which represents a cross-section of
U.S. government contractors, not just USAID contractors.
Were the Administration to successfully pull this off, and it seems highly unlikely, it
would only be equitable if the same cap were to be placed on the compensation of all
government-funded CEOs and their top execs – contractors and recipients.
This White House plan follows a letter co-signed by Senators Barbara Boxer and Chuck
Grassley and Rep. Paul Tonko of Albany, New York, sent on September 15th
calling on
OMB to issue a determination on the maximum allowable compensation, as found at
FAR 31.205-6(p), for government contractor senior executives. OMB is required by law
to issue such a determination, but has yet to do so this fiscal year.
In response to the $9 million in salary and bonuses paid to William Anders, the then
Chairman of the General Dynamics Corporation, before he retired in 1993, the executive
compensation benchmark was instituted in 1995 to limit the amount the top five
executives of a government contractor can charge taxpayers for their salary.
Currently, government contractors can charge taxpayers up to $693,951 for each of their
top five executives’ salaries. The benchmark does not in any way limit compensation for
those executives from non-government revenue streams, nor does it affect employees at
the contracting firms outside of the top five executives.
It is likely that, given the state of the national economy and the sensitivity of this issue
both at the White House and in Congress, there is likely to be traction on this issue to do
something about curtailing the amount of reimbursable compensation of top executives in
fiscal 2012.
STATE DEPARTMENT AND USAID IMPLEMENTING THE PARTNER VETTING
SYSTEM PILOT PROGRAM IN FIVE COUNTRIES
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On September 8th
, representatives from the State Department and USAID described their
plans for rolling out during the first quarter of FY 2012 the Partner Vetting System (PVS)
Pilot Program in Guatemala, Kenya, Lebanon, the Philippines and the Ukraine, consistent
with the authority granted in Section 7034(o) of Division F of P.L. 111-117, made
applicable to FY 2011 activities pursuant to the FY 2011 Continuing Resolution. The
PVS has been in effect in the West Bank/Gaza since 2002 and variations of it more
recently in Afghanistan and Somalia.
The pilot program will test a model in order to assess the potential that U.S. Government
funds, awarded in the form of contracts, grants and cooperative agreements, might be
diverted to entities or individuals associated with terrorism. Experience from the pilot
program will guide State and USAID officials in deciding how to implement any
expanded PVS program.
Using a risk-based approach meaning that not all solicitations will be covered,
offerors/applicants to select requests for proposals/applications will be asked by the State
or USAID Mission Vetting official to have the Partner Information Form (PIF), AID 500-
13 available at http://www.charityandsecurity.org/system/files/PVS%20Form2011.pdf,
on the organization and its key personnel -- U.S. and foreign citizens -- completed and
submitted. Prime contractors/recipients will be responsible for obtaining these completed
forms from their subs.
First, the State or the Mission Vetting official, respectively, will review the form and then
ensure the data is entered into the Secure Portal. After a security review using certain
databases, an eligibility/ineligibility determination will then be made as to the
offeror/applicant within a matter of a few days.
Only organizations will be vetted, not beneficiaries. There are no current plans to apply
PVS to existing projects, although a pilot Mission could require the submission of the PIF
for any extensions of existing awards with supplemental funding.
Testing of the Secure Portal for the PVS database is expected to be completed this month.
The secure portal will allow implementing partners to submit their organization’s
information into the PVS database.
USAID expected to publish a final rule in the Federal Register on Partner Vetting for
USAID acquisitions within the next two weeks, but so far it has not appeared. A notice
of proposed rule making for assistance awards is expected to be released shortly
thereafter. State expects to publish the System of Records Notice and Privacy Impact
Assessment this month.
Mission Orders will be issued by the five Missions, using a standardized template, which
will contain the procedures each of them will follow to implement the PVS pilot
program.
8
In going forward, the two Appropriations Committees call for different approaches and
timetables regarding implementing a full PVS. In Section 7034(h) of the draft FY 2012
Senate, Foreign Operations and Related Programs Appropriations Act, the House directs
the Secretary of State and the USAID Administrator to fully implement a global PVS not
later than September 30, 2012. On the other side of the Capitol, Senate Bill S. 1601
directs the heads of the State Department and USAID to merely “consult on plans to
expand PVS beyond a pilot program.”
FAR REVISION PROPOSES TO ELIMINATE 10% PRICE ADVANTAGE FOR SDBs
AND EDUCATIONAL INSTITUTIONS DUE TO CONSTITUTIONAL RULING
At 76 Fed. Reg. 55849-55858 (September 9, 2011), DoD, GSA, and NASA are proposing
to amend the FAR to address the impact of the decision in Rothe Development
Corporation vs. the DoD and the U.S. Department of the Air Force (USAF) on small
disadvantaged business concerns and certain institutions of higher education.
In November 1998, Rothe Development Corporation (RDC) filed suit against DoD and
the USAF (Rothe), in the U.S. District Court for the Western District of Texas. In its
complaint, RDC challenged the constitutionality of section 1207 of the National Defense
Authorization Act of 1987, Public Law 99-661 (10 U.S.C. 2323), alleging that it violated
the right to equal protection under the Due Process Clause of the Fifth Amendment to the
United States Constitution. RDC's initial complaint against the DoD/USAF focused on
the reauthorization of section 1207 in 1992.
On September 25, 2007, the U.S. District Court for the Western District of Texas entered
a judgment in favor of DoD. However, RDC appealed the court's ruling and on
November 4, 2008, the U.S. Court of Appeals for the Federal Circuit decided in its favor
[Rothe Dev. Corp. v. DoD, 545 F.3d 1023 (Fed. Cir. November 4, 2008)]. The U.S.
Court of Appeals for the Federal Circuit found 10 U.S.C. 2323 unconstitutional. A
District court decision mandated by the U.S. Court of Appeals was issued on February
27, 2009, enjoining all application of 10 U.S.C. 2323 [Rothe Dev. Corp. v. DoD, 606 F.
Supp. 2d 648 (W.D. Tex. 2009)].
Section 1207 of the National Defense Authorization Act of 1987, Public Law 99-661,
codified at 10 U.S.C. 2323, established the DoD, NASA, and the U.S. Coast Guard
(USCG), Small Disadvantaged Business (SDB) Participation Program. The purpose of
the program was to ensure that SDBs could fully participate in the Federal contracting
process. Section 1207 provided the authority for DoD, NASA, and USCG Contracting
Officers to apply a price adjustment of up to 10 percent to afford SDBs a competitive
price advantage when competing in a full and open competition and assist in achieving a
5 percent SDB goal. Section 1207 serves as the statutory underpinning for FAR subpart
19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns, as
well as some of FAR subpart 19.12, Small Disadvantaged Business Participation
Program, and certain associated FAR clauses.
9
DOD, GSA, and NASA are proposing to amend the FAR to remove coverage at FAR
subpart 19.11, FAR subpart 19.12, corresponding clauses at FAR 52.219-22, Small
Disadvantaged Business Status, FAR 52.219-23, Notice of Price Evaluation Adjustment
for Small Disadvantaged Business Concerns, FAR 52.219-24, Small Disadvantaged
Business Participation Program -Targets, FAR 52.219-25, Small Disadvantaged Business
Participation Program - Disadvantaged Status and Reporting, and FAR 52.219-26, Small
Disadvantaged Business Participation Program - Incentive Subcontracting, and to remove
references to FAR subpart 19.11, 19.12, and corresponding clauses in FAR parts 1, 2, 4,
12, 14, 15, 19, 22, 26, 52, and 53.
Certain authorities in FAR subpart 19.12 and supporting clauses addressing the award of
subcontracts to SDBs that are rooted in the Small Business Act, rather than in section
1207, were not at issue in the Rothe decision, and therefore retain their legal status. These
include the authority to (1) provide monetary incentives to prime contractors to
encourage subcontracting opportunities to SDBs and (2) use an evaluation factor or
subfactor to evaluate the participation of small businesses as subcontractors.
Because these authorities are not affected by the Rothe decision, the coverage in FAR
subpart 19.12 addressing subcontracting (with the exception of the coverage at FAR
19.1202 on the use of factors or subfactors to evaluate SDB subcontract participation) has
been retained but moved to FAR subpart 19.7, which already addresses subcontracting
issues generally, including the use of monetary incentives to encourage subcontracting
opportunities. As a result, this realignment consolidates coverage on subcontracting with
small business programs in one place.
With respect to FAR 19.1202, Evaluation Factor or Subfactor, FAR subpart 19.7 is
currently silent on its use. Nothing in this rulemaking precludes an agency from using
evaluation factors and subfactors for subcontracting during source selections. The Small
Business Administration's (SBA) regulations [13 CFR 125.3(g)] allow the application of
evaluation factors and subfactors to subcontracting with any of the small business
programs, including, but not limited to, SDBs. The Federal Acquisition Regulatory
Council will confer with SBA to evaluate the need for guidance in the FAR on the use of
evaluation factors and subfactors for subcontracting.
OMB WANTS FEDERAL AGENCIES TO PAY SMALL BUSINESSES WITHIN 15
DAYS
OMB Director Jacob Lew issued a memorandum on September 14th
for the Heads of
Executive Departments and Agencies to accelerate payments to small businesses. For a
copy of this memo, please go to
http://www.whitehouse.gov/sites/default/files/omb/memoranda/2011/m11-32.pdf.
The memorandum outlines the Executive Branch policy that, to the maximum extent
permitted by law, Federal agencies shall make their payments to small business
contractors as soon as practicable, with the goal of making payments within 15 days of
receipt of relevant documents, including a proper invoice for the amount due and
10
confirmation that the goods and services have been received and accepted by the Federal
Government.
This policy varies from the provisions of the Prompt Payment Act which requires a
Federal agency to pay its contractors within 30 days of receipt of a correct invoice.
Prime contractors should not be taken back by subcontractors insisting upon the same
payment period.
15 CRITICAL SAFEGUARDS TO PREVENT AND DETECT FRAUD AND
EMBEZZLEMENT AT OVERSEAS FIELD OFFICES
As seen in the demise of the Academy for Educational Development due to its weak
internal accounting controls at its Northwest Territories Pakistan field office and the
below reviewed audit report by RIG/San Salvador highlighting the weak internal controls
of a leading NGO’s field offices in Haiti, the strength of an NGO’s field office controls
can be its undoing, notwithstanding the effectiveness of its controls at its central office.
One aspect of the overall control environment NGOs have to take into consideration is
the lack of financial or control acumen of their country reps. or chiefs of party. Usually,
field managers are hired almost exclusively for their program or technical know-how, and
not their business or financial sense. In turn, these people often hire the field office
finance manager whose loyalty is to, and continued employment depends on, the field
manager. Some field managers, claiming ignorance, even go so far as to entirely delegate
all financial matters to their “loyal, trusted” finance staff. It has been reported elsewhere
that 70% of all scams have been perpetrated by finance people!
Lacking a direct or broken-line reporting relationship to the organization’s CFO, this is a
recipe for failure. It is our contention that, in such situations, these organizations have no
controls at all in the field! And it is just a matter of time until they get ripped off.
More than instituting the traditional internal controls, such as, “no one person should
have control over the entire accounting cycle to authorize, approve and execute
transactions,” NGOs need to direct their controls to the kinds of “windows of
opportunity” for fraud and embezzlement found in the many high-risk settings in which
NGOs are now operating.
With the advances in printer technology and wordprocessing software, all hardcopy
documents should be suspect. Entire bank statements can be falsified as well as
individual entries on them replaced. Authorizing documents from banks and tax
authorities, which in the past could be relied upon, have been too easily produced by
perpetrators. Payee names on checks can easily be washed with common household
cleansers, and replaced. Internal accounting controls must be attuned to meet these
advances in technology.
Recognizing these challenges, here are 15 state-of-the-art internal accounting controls
NGOs should consider installing in all their field offices:
11
1. Field manager performs frequent, surprise counts of cash
2. Two signatures required for all except low-dollar checks and for all bank transfers
3. Bank reconciliations rotated and closely examined by non-finance manager
4. Copy of bank and credit card statements sent off-site and examined
5. Two people required to enter all new employees into the payroll system
6. Two people required to enter all new vendors into central contractor registry
7. Two people should inventory all purchased equipment and program and office
supplies
8. All staff and vendors required to have checking accounts
9. Minimize cash transactions, to the extent practicable
10. Review annual tax withholdings and income reporting to tax authorities
11. Vet OF-126 Home of Record for expats and TCNs and any changes for accuracy
12. Using a risk-based approach, have “secret shoppers” verify prices of select items
and require field implementation team to lease all personal and office space
13. Have internal auditors use forensic auditing techniques in testing transactions
14. For large projects located in high-risk settings, hire and embed an investigator
with the project(s)
15. NGO’s CFO hires or approves hiring and trains all field finance staff who report
directly to the CFO or central office finance staff.
Controls necessarily need to evolve as new challenges are posed. These 15 controls are
an initial attempt to identify the necessary controls that NGOs should put in place. No
doubt, there are others. NGO Financial Newsletter welcomes suggestions on others that
should be added. We look forward to hearing from you. If you personally have
perpetrated a scam, we will honor your request for confidentiality on anything you would
like to pass along.
RIG/SAN SALVADOR FINDS 3 “MATERIAL” WEAKNESSES AND 8
“SIGNIFICANT” WEAKNESSES IN NGO/HAITI FIELD OFFICES’ FINANCIAL
MANAGEMENT CONTROLS
You don’t want to receive an audit report like the one we reviewed at
http://www.usaid.gov/oig/public/fy11rpts/1-521-11-002-S.pdf. Based upon such
findings, some could question this NGO’s basic responsibility.
Initiated at the request of USAID/Haiti, this review by the Regional Inspector
General/San Salvador was to determine whether this leading NGO Haiti field offices’
financial management controls provide reasonable assurance that it is reporting reliable
financial information for its 4 USAID-funded awards totaling $28.8 million.
The review identified 3 “material weaknesses” in this NGO’s internal controls. A
weakness is “material” in that it results “in more than a remote likelihood that a material
misstatement of the financial statements will not be prevented or detected.” The three
reported weaknesses are:
12
The NGO field offices did not have supporting documents for expenditures
totaling $892,038
For one program, financial data for one year was corrupted, and the data
backups were not functional and could not be installed
The NGO’s headquarters reconciled the total costs recorded in its general
ledger with those in the field office general level, but reconciliations were not
done at the account level.
The review also reported 8 “significant” weaknesses. By definition, a significant
weakness is a “deficiency in internal control or a combination thereof that is less severe
than a material weakness, but is important enough to merit attention by those charged
with governance.” RIG/San Salvador reported:
The Haitian field offices did not always make timely payments to vendors and
employees
The subawardee selection process required proposals detailing the needed
services or activities, eligible activities, criteria for selection, and application
guidelines. Four of the nine subawards selected lacked supporting
documentation showing that the field offices had conducted preaward surveys.
The field offices rely on physical counts of assets to safeguard them.
However, the offices did not complete a physical count during one year.
The field offices’ policies and procedures were incomplete. They did not
address the use of contracts, budget review and approval, segregation of
duties, or requirements related to advance of funds.
The field offices paid a staff employee or a third party rather than paying the
vendor directly. [If nothing else, this is a clear “window of opportunity” for
fraud or embezzlement with the potential for payments being diverted. We
are surprised that this was not reported as a material weakness.]
Housing costs related to security were not approved by the awarding agencies,
and NGO staff traveled to the Dominican Republic without obtaining approval
for the international travel [If the staff drove to the D.R., approval is not
required; approval is required on a grant or cooperative agreement only for
international air travel.]
The review found in several cases -- an office not used for the program
charged and overcharging for consulting services and garage services -- the
cost allocations were not calculated according to the reasonable proportion of
benefits received
Credits for repayment of rent and education allowances by one of its officers
were not reflected to the proper program.
We have observed a greater aggressiveness by this Office of Regional Inspector General
since the current RIG assumed her position in San Salvador. NGOs and contractors
working in the Latin America and Caribbean Region would be well-advised to upgrade
their field office controls to avoid a report like this.
13
OIG/AFGHANISTAN LAYS INTO INTERNATIONAL NGO FOR MULTIPLE
DISALLOWANCES
A USAID audit report titled “Review of USAID/Afghanistan’s Afghan Civilian
Assistance Program,” reads like everyone’s worst nightmare. The Office of Inspector
General/Afghanistan cited this International NGO (INGO) for the following
recommended $8.4 million in disallowances:
Recover from the INGO the cost of stored food that is no longer fit for human
consumption, which the OIG estimates at up to $2,660,924
Recover from the INGO the $740,331 cost for assistance kits, which was not
needed to carry out program operations
Determine the allowability and recover, as appropriate, the $1,360,800 in shelter
assistance grants in Helmand Province that could not be verified
Determine the allowability of and recover, as appropriate, $3,437,000 that the
INGO spent to buy used vehicles for program beneficiaries without USAID
approval.
Determine the allowability of and recover, as appropriate, $180,000 that was
reportedly embezzled.
The audit report, which is available at http://www.usaid.gov/oig/public/fy11rpts/f-306-
11-005-s.pdf, went into considerable detail regarding the alleged embezzlement, when it
said: “According to the USAID field program officer, [the INGO’s] field staff pocketed
$180,000 in program funds that were supposed to pay for assistance to people who
suffered losses caused by military operations against insurgents. The staff reportedly
embezzled the funds by falsifying documentation to make it appear that the funds were
being used to buy livestock that was distributed to program beneficiaries.”
“As a corrective action, the INGO terminated the staff members’ employment. After the
beneficiaries complained to a village shura, the shura reportedly obtained reimbursement
of the $180,000 from three individuals and distributed these funds to individuals in the
village as the shura thought best. No records were kept of recipients and amounts, and
according to the USAID field program officer, many of the recipients had not suffered
any losses that would have made them eligible for assistance under the program. The
informal way in which the situation was resolved, though it had the advantage of
engaging local leaders and institutions, did not comply with the program’s eligibility
requirements for assistance,” the report stated.
DCAA PLANNING ON COMPLETING INCURRED COST AUDITS FOR
CONTRACTOR FISCAL YEARS 2009 AND EARLIER
The Defense Contract Audit Agency (DCAA) has issued its fiscal year 2012 staffing
allocation to each of its regional offices, as well as supplemental guidance on completing
the plan. The guidance discusses several audit priorities for the coming fiscal year.
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Much of the memorandum discusses the agency’s plan to reduce the incurred cost
submission backlog. The objective will be to complete incurred cost audits for contractor
fiscal years 2009 and earlier. However, the memo acknowledges that DCAA has
resources in 2012 to complete only 28% of the number of audits.
DCAA will be prioritizing these audits given its scarce staffing resources. Highest on the
list are contractors with overseas contingency operations. Next in priority will be those
audits carried over from FY 2011. Corporate, home office and service center proposal
audits will follow. And, last of all are non-major incurred cost audits with three or more
of adequate submissions ready for audit, and which have not been held up for completion
of other organizational unit audits.
The guidance also specifically assigns high priority to certain continuing initiatives
started in FY 2011. Top among these is Billing and Accounting System audits at pilot
test sites. Usually, these audits are applicable only to major contractors. However, we
have seen them in the case of a large USAID-funded nonprofit organization and RIG/San
Salvador has called for the audit of a large USAID contractor’s accounting system.
Despite this good news on DCAA assigning higher priority for incurred cost audits,
contractors can still expect to encounter extensive auditor requests for supporting data,
stop-and-go audits, continued shortages of qualified DCAA audit staff, and time-
consuming negotiations with Agency Contracting Officers when they challenge auditor
findings.
Relatedly, contractors should be aware that DCAA is undertaking a new approach to
conducting postaward or defective pricing audits. DCAA’s newest audit program --
Audit Program No. 42000, dated August 2011 -- deletes all probe testing and expands the
risk assessment procedure and the detailed audit steps. DCAA’s audit programs are
located at http://www.dcaa.mil.
GAO RELEASES INTERIM VERSION OF GOVERNMENT AUDITING
STANDARDS, EFFECTIVE FOR PERIODS ENDING ON OR AFTER 12/15/2012
The Government Accountability Office (GAO) released an interim version of an update
to Government Auditing Standards (also referred to as the “Yellow Book”) titled 2011
Interim Version of Government Auditing Standards. The main area of change in the
standards relates to auditor independence. Since auditors need to be independent for the
entire audit period, the independence provisions should be considered prior to the
effective date.
It is available at http://www.gao.gov/govaud/iv2011gagas.pdf and is effective for
financial audits and attestation engagements for periods ending on or after December 15,
2012. It is effective for performance audits for audits beginning on or after December 15,
2011. Early implementation is not permitted.
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Because of the link between the AICPA’s auditing standards and these standards, the
GAO decided to issue the new standards in an interim format until such time that the
AICPA Auditing Standards Board (ASB) completes its clarity revisions to the AICPA’s
auditing standards.
The major changes in the new standards are:
The 2011 interim revision introduces a conceptual framework approach to
independence using a “threats and safeguards” approach
The revised standards include an identification of categories of threats that
include (1) management participation threat, (2) self-review threat, (3) bias threat,
(4) familiarity threat, (5) undue influence threat, (6) self-interest threat, and (7)
structural threat
The revision contains certain nonaudit service prohibitions that are generally
consistent with AICPA Ethics Implementation 101.3, Performance of Nonaudit
Services (paragraph 3.36 of the standards includes a listing of these services)
Nonaudit services that are not specifically prohibited in the 2011 Interim revision
will have to be evaluated by auditors against the conceptual framework, and an
assessment will need to be made of management’s ability to effectively oversee
the nonaudit service
While not prohibited, paragraph 3.40 of the standards states that activities such as
financial statement preparation, cash to accrual conversions, and reconciliations
are considered to be nonaudit services that would have to be evaluated using the
conceptual framework
New independence-related documentation requirements are introduced. For
example, auditors will have to document threats to independence that require the
application of safeguards, along with the safeguards applied. Additionally,
auditors will also have to assess and document management’s ability to
effectively oversee nonaudit services to be performed, including whether
management possesses suitable skill, knowledge or experience.
The 2011 interim revisions finalize many updates that were proposed in the Exposure
Draft relating to auditing standards issued by the AICPA, as well as identifying additional
Government Auditing Standards (GAS) requirements and guidance that supplement
AICPA’s requirements for financial audits. The revision also consolidates the financial
audit standards into a single chapter (i.e., chapter 4).
One important provision contained in the Exposure Draft related to the use of internal
specialists on a GAS audit and their adherence to the GAS Continuing Professional
Education (CPE) requirements. Internal specialists consulting on a GAS audit who are
not involved in directing, performing audit procedures, or reporting on the GAS audit,
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should be qualified and competent in their areas of specialization, but they are not
required to meet the GAS CPE requirements.
PCAOB SEEKS COMMENTS TO MAKE AUDIT REPORTS MORE REVEALING
From Reuters, auditors should reveal more about companies whose books they check and
draw more attention to financial risks, investors told the main U.S. auditor watchdog on
Thursday.
The standard three-paragraph audit opinion attached to corporate annual reports has been
largely unchanged for decades and should be reformed, investor groups said.
"The bottom line is that investors want more information from the outside auditors," Ann
Yerger, executive director of the Council of Institutional Investors, said at a Webcast
round table in Washington D.C.
Audits of public companies sometimes take thousands of hours and can cost more than
$100 million, but the most investors generally see is a few paragraphs of boilerplate
language, she said.
The Public Company Accounting Oversight Board (PCAOB), the main watchdog group
for U.S. auditors, is mulling changes to the auditor's report, such as adding an "auditor's
discussion and analysis" detailing more about how the audit was done and what auditors
thought of a company's accounting policies.
"Investors want a little more color on what the auditors are seeing," such as the
judgments made by management in coming up with financial numbers or a discussion of
unusual transactions, Yerger told the board.
Auditors already give some of that kind of information to companies' audit committees so
there should not be a significant increase in audit costs, she said.
Some find audit reports of no use at all.
The audit profession "is in no way opposed to meaningful change" in the auditor's report,
said Robert Kueppers, deputy chief executive of Deloitte LLP. However, management
and not auditors should be originating information about the company, he said.
"If we become the original source of disclosures about the issuer, rather than
management, that is fundamentally changing our role," he said.
Current audit reports tell investors whether financial statements fairly present a
company's financial condition and follow generally accepted accounting principles.
In a survey presented at a PCAOB investor advisory group meeting earlier this year,
nearly one in five respondents said the standard report is of no use at all.
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Lynn Turner, former chief accountant of the Securities and Exchange Commission, said
auditors had insights into risks at failed companies such as AIG, Lehman Brothers and
Adelphia that could have helped avert major investor losses.
"That's why people are asking for this information," Turner said. "The auditors in each of
those cases knew significant information that was very vital to investors."
Some speakers said auditors should simply share information they already learn when
they do audits, such as uncertainties about taxes, loan loss reserves or judgments
managers use in coming up with fair values for assets.
"Since all that investors are asking for is what auditors already know, why can't this be
done easily and cost-effectively?" asked PCAOB board member Steven Harris.
However, Gary Kabureck, chief accounting officer at Xerox Corp, argued that an
auditor's discussion and analysis "is not going to be free or even cheap." Drafting
external reports of that type "tends to be very expensive time," he said.
The PCAOB is taking comments on the issue until the end of the month, with a proposal
due out early next year.
Meanwhile, the PCAOB plans to publish a proposed amendment to auditing standards by
the end of this month that would require audit firms to identify in their audit reports the
engagement partner and any outside firms or individuals who contributed to an audit.
The proposal is just one of several changes to audit reports the PCAOB plans to suggest.
EX-USAID CONTROLLER PLEADS GUILTY TO THEFT OF GOVERNMENT
PROPERTY AND UNPAID TAXES, ALSO TO PAY $1.9 MILLION FOR
UNREPORTED FOREIGN BANK ACCOUNT
According to a U.S. Attorney for the District of Columbia press release, Michael E. Hase,
63, the former Controller with USAID/Armenia, pled guilty to Federal charges of theft of
government property and filing false income tax returns. Mr. Hase entered the plea in the
U.S. District Court for the District of Columbia. United States v. Michael E. Hase (dcdc
11cr262, September 1, 2011)
As part of the plea agreement, Hase agreed to pay restitution of $47,333.43 to USAID
and file accurate Amended U.S. Individual Income Tax Returns for unreported income of
$909,157.66 in interest earned on deposits in his foreign bank account, income from an
investment in a limited liability corporation plus the amount embezzled from USAID.
Based upon a 28% tax rate, he must pay $254,564.14 in taxes plus any interest and
penalties owed on those returns to IRS or, if unable to do so, make satisfactory repayment
arrangements.
In addition, he must pay a $1,937,767 penalty to IRS for his failure to report his foreign
bank account, on the Form TD-F 90-22.1, commonly referred to as the “FBAR,”
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originally set up in 1996 at the Swiss Bank Corporation in the Channel Islands (Jersey)
and, after its merger, then with UBS AG. Hase originally opened the foreign bank
account with a deposit of $1,076,578 while serving as USAID/Jamaica’s Controller.
According to the court documents, Hase worked as a direct-hire until he retired and then
as a PSC for more than 30 years for USAID in various locations throughout the world as
an accountant. From July 2007 through April 2009, while serving as Controller for the
USAID Mission in Armenia, Hase stole $47,333.43 from USAID. On six occasions, he
used his position as Controller to direct four wire transfer monies for refunds, interest
earned by recipient banks, unexpended grant balances and collections from defaulted
borrowers intended for USAID, into his personal bank account at Lafayette Federal
Credit Union in the U.S.
Magistrate Judge John D. Bates scheduled sentencing for December 2, 2011. The
statutory maximum period of incarceration for these offenses is 13 years. Under the
advisory sentencing guidelines, the sentencing range is likely to be between 27 to 33
months of imprisonment.
FOUR FEDERAL COURT DECISIONS IN SEPTEMBER UPHOLD LIMIT ON
CONTRACTOR LIABILITY
September witnessed an unusual bumper crop of Federal District and Appellate Court
decisions centered around the issue of the liability of contractors working to support
overseas contingency operations in a battle zone.
The case that’s potentially related to the deliberations in Fisher v. Halliburton, (5Circ
10cv20202 & 10cv20371), a case we are closely watching in that it deals with the
coverage of DBA insurance to “other than accidents,” is Martin v. Halliburton (sdtx
09cv0328).
This is a dispute where Donald Tolfree worked for Halliburton in Iraq as a “chase truck
driver.” In that capacity, he was to act as the driver for a replacement vehicle if a vehicle
in the convoy broke down. He and another driver were given instructions to follow the
convoy until the recovery convoy driver told him to exit from the military camp.
Supposedly, he was not to leave the gate of the camp unless instructed.
However, he followed the convoy outside the gate and, after driving two miles, was told
to go back. At this time, the U.S. military was aware that insurgents had recently been
hijacking convoy trucks and using them as explosive devices. Upon seeing the two
unidentified, unaccompanied trucks heading toward the entrance of the camp, a military
gunner shot and killed Tolfree.
Kristen Martin, Tolfree’s daughter, filed a complaint in the Southern District of Texas for
negligence, wrongful death, fraud and fraud in the inducement, intentional infliction of
emotion distress (due to KBR representatives misinforming her of the nature of her
father’s death), and gross negligence against Halliburton, KBR Inc. et al.
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On September 2nd
, the court in Martin dismissed the plaintiff’s claims for lack of subject
matter jurisdiction due the DBA’s exclusivity-of-remedy provision. The court also did so
only after finding the death of KBR’s employee was “accidental” because it could not
find, based on the evidence, that KBR “specifically expected” that the employee would
be killed in a friendly-fire case.
In another case, Peter Taylor v. Kellogg Brown & Root Services, Inc. (KBR) (4Circ
10cv1543), Taylor appeals from the Eastern District of Virginia District Court’s (edva
09cv00341) dismissal of his negligence lawsuit against KBR.
On July 27, 2007, Taylor, a U.S. Marine, was assigned to Marine Camp Fallujah in
Fallujah, Iraq. Taylor, along with other Marines, was working to hook up the Marine
Corps’ own generator that would supply power when the main generator maintained by
KBR failed. While he was performing the work, KBR electricians arrived to attempt
repairs. The KBR electricians were told not to turn on the main generator until notified
by the Marines. However, while the Marines were still in the process of connecting the
wiring box, the KBR electricians turned on the main generator. Taylor suffered third
degree burns on his hands and wrists, permanent nerve damage and scarring. As a result,
he filed suit against KBR in Federal district court for KBR’s negligence.
KBR sought dismissal of Taylor’s action for lack of subject matter jurisdiction,
contending that his negligence claim is barred by the “political question” doctrine or, in
the alternative, preempted by the “combat activities” exception to the Federal Tort
Claims Act. By its decision of April 16, 2010, the District Court accepted both of KBR’s
contentions and dismissed Taylor’s claim.
Taylor then appealed to the Fourth Circuit Court of Appeals which on September 21st
affirmed the judgment on the basis that an adjudication of Taylor’s claim against KBR
would necessarily implicate a political question which the Federal courts lack jurisdiction
to decide.
Two other Federal cases involved Iraqi prisoner claims against their American contractor
captors. In Suhail Najim Abdullah Al u Shimari et al v. CACI International,
Incorporated; CACI Premier Technology, Incorporated, Defendents-Appellants. Kellogg
Brown & Root Services, Incorporated, Amicus Supporting Appellants (4Circ 09cv1335,
September 21, 2011), the plaintiffs, Iraqi citizens, brought this tort action against a
government contractor alleging that they were tortured while being detained in the Abu
Ghraib prison near Baghdad.
On an interlocutory appeal from the District Court which refused the contractor’s motion
to dismiss the action, the Fourth Circuit reverses and concludes “based on the uniquely
Federal interests involved in this case, that the plaintiffs’ tort claims are preempted and
displaced under the reasoning articulated in Boyle v. United Technologies Corp., 487
U.S. 500 (1988), as applied to circumstances virtually identical to those before it in Saleh
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v. Titan Corp. 580 F.3d 1 (D.C. Cir. 2009), cert. denied, __ U.S. __, No. 09- 1313, 2011
WL 2518834 (June 27, 2011). The court remands with instructions to dismiss.
See a companion case, Wissam Abdullateff Saeed Al-Quraisi, Plaintiff-Appellee v. Adel
Nakhla, Defendant-Appellant, and L-3 Services, Incorporated; CACI International,
Incorproated; CACI Premier Technology, Incorporated (4Circ 10cv1921, September 21,
2011).
Separately, in U.S. Small Business Administration -- Indefinite-Delivery Contract
Guaranteed Minimum, B-321640 September 19, 2011, a valid obligation must reflect a
bona fide need at the time the obligation is incurred. Thus, an agency must have a bona
fide need for the guaranteed minimum of an indefinite-delivery indefinite-quantity
contract (IDIQ).
The U.S. Small Business Administration (SBA) violated the bona fide needs rule, GAO
determined, where it did not have a bona fide need for the guaranteed minimum
quantities, in this case $290,000, specified in an IDIQ contract at the end of fiscal years
2009 and 2010. SBA reported that it has adjusted its accounts to correct its bona fide
needs violation.
TWO INTERESTING CIVILIAN BOARD OF CONTRACT APPEALS DECISIONS
RELEASED
In Eyak Technology, LLC v. DHS, CBCA 1975, September 2, 2011, a U.S. Department of
Homeland Security Contracting Officer lacked authority to unilaterally impose reporting
requirements of the American Recovery and Reinvestment Act of 2009 on a contractor
midway through contract by unilaterally inserting FAR 52.204-11 in the contract.
Second, the Board denied USAID’s motion for summary relief because it presents no
new grounds apart from those earlier disposed of in a prior decision, in Samuel A. Rubino
v. AID, CBCA 2127 (September 1, 2011). This dispute surrounded the early separation
of a personal services contractor (PSC) from his assignment as executive officer in Juba,
Sudan after verbal statements were attributed to the Deputy Mission Director as to the
expected date of completion of Rubino’s assignment. Also see Samuel A. Rubino v. AID,
CBCA 2127, March 22, 2011.
Meanwhile, there are four bid protests undecided involving two USAID contract
competitions: Symbion Power, LLC, involving Solicitation No. 521-11-032, filed
through September 19, File Nos. B-405507.3, .2. & .1; and Financial Markets
International, Inc., involving Solicitation No. M-OAA-DCHA-DOFDA-09-618, File No.
B-405562.1, filed August 18.
11 STATES JOIN IRS AND THE DEPARTMENT OF LABOR TO CRACK DOWN
ON EMPLOYEE MISCLASSIFICATION ABUSES
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Last month, NGO Financial Newsletter reported that various states are joining with the
Department of Labor to crack down on misclassification of employees and for other
abuses. This past month, it was announced earlier that 11 states and the IRS will join in
an effort to crack down on companies that classify employees as independent contractors
to avoid paying overtime.
The agencies and states agreed to share wage information filed by the companies to help
the Labor Department find and prosecute companies that misidentify workers in order to
skirt paying unemployment benefits or Federal taxes, according to Mike Wald, a
department spokesman.
The Administration is stepping up enforcement of wage-and-hour laws, which set
minimum pay and define positions where overtime pay is required, targeting select
industries, the Department said in a statement.
“We are actively looking at those industries that employ the most vulnerable workers and
that engage in business practices, such as misclassifying employees as independent
contractors, that result in violations of minimum wage and overtime laws,” according to
the e-mailed statement.
A Government Accountability Office report from 2009 found misclassification of
workers cost the federal government $2.72 billion in 2006. A 2000 Labor Department
report estimated that as many as 30 percent of employers misclassify workers to exempt
them from overtime and other wage laws.
Agreements with the states may subject companies to more than one fine for the same
violation. In the past, a company might settle with a state agency for improper payments
of unemployment-insurance benefits. Under the accord, states now will share
information about a company with the Labor Department, which would seek fines and
penalties under federal law. The violations could also be reported to the IRS, which
could seek unpaid taxes from the company.
The States joining with the Department of Labor in this initiative are Connecticut,
Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York,
Utah and the State of Washington.
IRS OFFERS EMPLOYEE RECLASSIFICATION AGREEMENT
Employers may reclassify independent contractors as employees and limit the resulting
Federal payroll taxes for their most recent tax year, plus avoid related penalties and
interest for prior years, under a new IRS program.
In Announcement 2011-64, the IRS outlined its new Voluntary Classification Settlement
Program (VCSP). Unlike an existing settlement program for employers under an IRS
examination, the VCSP allows eligible taxpayers to voluntarily enter into an agreement
with the IRS.
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Generally, if an employer has the right to direct and control how a worker performs
services for the employer, that worker is properly classified as an employee and the
employer must withhold FICA and income taxes from wages and other compensation and
pay the employer’s share of FICA tax.
Proper classification of workers has been a perennial concern for employers, employees
and the government. Last year, the IRS launched a national research project in which it
sent thousands of audit letters to employers. The IRS signed a memorandum of
understanding with the U.S. Department of Labor to share information between them to
reduce misclassification.
To participate in the VCSP, employers must submit an application and agree to
prospectively treat their workers or a class or group of workers as employees for federal
employment tax purposes in future tax periods. Employers must also agree to extend the
period of limitation on assessment of employment taxes for three years for each of the
three calendar years beginning after the date of the agreement.
In return, employers will pay 10% of the employment tax liability otherwise due for the
most recent tax year, which will not be subject to interest or penalties. In addition, the
IRS will not conduct an employment tax audit with respect to the employer’s worker
classification for prior years. The employment tax liability for the most recent year is
determined under the reduced rates of IRC § 3509, which provides that for failure to
deduct and withhold taxes arising from a worker misclassification, the employer’s
liability for the employee’s portion of FICA tax is limited to 20% of the normal employee
FICA tax. This percentage is doubled for disregard or willful neglect of reporting
requirements.
To be eligible for the program, employers must not currently be under audit by the IRS,
the Labor Department or a state agency concerning worker classification. Employers
whose worker classification has been previously audited must have complied with results
of the audit. Also, employers must have consistently treated workers as nonemployees,
for whom they must have filed all required Forms 1099 for the previous three years.
Employers can apply for the program using Form 8952, Application for Voluntary
Classification Settlement Program, at least 60 days before they want to begin treating the
workers as employees.
FINAL IRS REGS IMPLEMENT FORM 990 CHANGES FOR TAX-EXEMPT
ORGANIZATIONS
The Internal Revenue Service issued final regulations on September 7 (TD 9549)
implementing extensive revisions made in 2008 to Form 990, Return of Organization
Exempt From Income Tax. The final regulations provide new threshold amounts for
reporting compensation, require that compensation be reported on a calendar-year basis
and modify the rules requiring information reporting upon a substantial contraction. The
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final regulations adopt with some modifications temporary and proposed rules the IRS
issued in September 2008 (TD 9423 and REG-142333-07).
The final regulations eliminate the advance ruling process for new organizations. Instead
of requesting a determination of its public charity or private foundation status in its
application for recognition of tax-exempt status, an organization will qualify as a publicly
supported organization (and thus a public charity) in its first five years if it can show in
its application that it reasonably expects to receive the requisite level of public support
during that period.
For purposes of the IRC § 509(a) public support test, the regulations lengthen the
timeline for computing public charities’ level of public support from four prior years to
five years: four prior years plus the current tax year. Charities that fail the public support
test must be classified as private foundations. The public support test requires a charity
to receive more than one-third of its support each tax year from qualifying gifts, grants,
contributions or membership fees, or gross receipts from activities that are not an
unrelated trade or business. Under the temporary and proposed regulations, those that
fail to meet the test in one tax year could be reclassified as a private foundation as of the
first day of the next succeeding tax year if they also continue to fail the test in that
succeeding year.
The final regulations modify the temporary and proposed regulations to provide that
charities that fail to meet the public support test for two consecutive tax years will be
treated as a private foundation as of the beginning of the second year of such failure, but
only for purposes of sections 507 (termination of private foundation status), 4940 (excise
tax on investment income) and 6033 (organizations required to file). An organization
otherwise will be treated as a private foundation as of the first day of the third
consecutive tax year.
The regulations require an organization to use the same accounting method for computing
its public support that it uses to keep its books and that it uses to report on Form 990.
Previously, organizations were required to use the cash method when computing public
support and reporting on Schedule A, Public Charity Status and Public Support.
The final regulations also restore language inadvertently deleted from the temporary and
proposed regulations allowing grantors and donors a limited ability to rely in certain
instances on a written statement by the organization of its authorization to receive tax-
deductible donations. They also provide that for purposes of section 4966 (excise tax on
a sponsoring organization of a donor-advised fund), sponsoring organizations may rely
on an IRS determination letter or ruling that a grantee organization has similar
authorization.
In late 2007, the IRS released the redesigned Form 990, which introduced new schedules
and reporting requirements and thresholds. Tax-exempt organizations required to file
Form 990 have been required to use the new form for tax years beginning in or after
2008.
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Among areas subject to greater details of disclosure (to both the IRS and the public) in
the revised form are reportable compensation to officers, related organizations and key
employees; organizational structure, including relationships to other organizations or
unrelated partnerships; and internal policies including those addressing conflicts of
interest, whistleblowers and document retention. The form now also delves deeper into
organizations’ activities, including those furthering their exempt purposes or potentially
at odds with them, such as political and lobbying activities. It requires more details
regarding grants exempt organization make to others.
The final regulations are effective upon their publication in the Federal Register on
September 8 at http://www.gpo.gov/fdsys/pkg/FR-2011-09-08/pdf/2011-22614.pdf and
apply to tax years beginning on or after Jan. 1, 2008.
IRS ISSUES GUIDANCE ON TAX TREATMENT OF CELL PHONES
At IR-2011-93, September 14, 2011, IRS issued guidance designed to clarify the tax
treatment of employer-provided cell phones. The guidance relates to a provision in the
Small Business Jobs Act of 2010, enacted last fall, that removed cell phones from the
definition of listed property, a category under tax law that normally requires additional
recordkeeping by taxpayers.
This Notice provides guidance on the treatment of employer-provided cell phones as an
excludible fringe benefit. The Notice provides that when an employer provides an
employee with a cell phone primarily for noncompensatory business reasons, the
business and personal use of the cell phone is generally nontaxable to the employee.
The IRS will not require recordkeeping of business use in order to receive this tax-free
treatment.
Simultaneously with the Notice, the IRS announced in a memo to its examiners a
similar administrative approach that applies with respect to arrangements common to
small businesses that provide cash allowances and reimbursements for work-related use
of personally-owned cell phones. Under this approach, employers that require
employees, primarily for noncompensatory business reasons, to use their personal cell
phones for business purposes may treat reimbursements of the employees' expenses for
reasonable cell phone coverage as nontaxable. This treatment does not apply to
reimbursements of unusual or excessive expenses or to reimbursements made as a
substitute for a portion of the employee's regular wages.
Under the guidance, where employers provide cell phones to their employees or where
employers reimburse employees for business use of their personal cell phones, tax-free
treatment is available without burdensome recordkeeping requirements. The guidance
does not apply to the provision of cell phones or reimbursement for cell-phone use that
is not primarily business-related, as such arrangements are generally taxable.
Details are in the memo and in Notice 2011-72, posted on http://www.IRS.gov.
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TETRA TECH ACQUIRES PRO-TELLIGENT
Tetra Tech announced that it has signed a definitive agreement to acquire Department of
State contractor PRO-telligent.
PRO-telligent provides a range of technical support services primarily to the U.S.
Department of State (DOS) at locations worldwide. PRO-telligent has more than 600
employees and approximately $100 million in annual revenue.
"PRO-telligent performs the type of strategy and planning work that precedes our foreign
policy implementation work for USAID," said Dan Batrack, Tetra Tech's Chairman and
CEO. "This move complements our strategy to better serve our DOS customer, a long-
term goal we've expressed for several years."
PRO-telligent is joining Tetra Tech's Technical Support Services business segment.
Previously, Tetra Tech acquired ARD which, in turn, acquired DPK Consulting,
Even without PRO-telligent’s revenue added, Tetra Tech, a diversified government
contractor, has racked up almost half a billion in awards in fiscal 2011, of this $173
million is from USAID, $52 million from the Federal Aviation Administration, $52
million from the Army, $42 million from the Navy, and $44 million from the
Environmental Protection Agency, according to USAspending.gov.
CURRENT POSTINGS OF USAID’s OVERSEAS CONTRACTING/AGREEMENT
OFFICERS
Last month, we reported on USAID’s FSN Pilot Warrant and TCN and US PSC Pilot
Warrant Programs. These programs are intended to address U.S. direct-hire
Contracting/Agreement Officer (C/AO) shortages and meet the Administrator’s
procurement reform goals.
Nowhere are the shortages more evident than with the over-stretched warranted direct-
hire C/AOs overseas. USAID has been scrambling to fill its staffing requirements for
Afghanistan, Pakistan, Sudan and Iraq, as well as the 31 other USAID posts requiring
C/AOs.
Currently, the Agency has 15 direct-hire senior C/AOs and a limited number of mid-level
C/AOs at these posts. The Development Leadership Initiative has brought on 56 entry
and mid-level contracting officers, but it will take at least 5 years for them to develop the
experience, skills and competencies necessary to assume a senior C/AO position,
overseeing a Regional Service Center’s or Mission’s entire acquisition and assistance
portfolio.
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USAID has been going to the well of GS contracting officers to fill foreign service
positions overseas under a Foreign Service Limited appointment. However, The Office
of Acquisition and Assistance itself is experiencing a similar staffing shortage.
USAID has also brought back very experienced, retired foreign service officers under a
PSC contract lasting up to 5 years. However, these C/AOs are normally short-term hires
used to cover direct-hire C/AOs on home leave, between assignments or to supplement a
Mission’s A&A contract office staff.
It is with this backdrop that we provide the current postings of USAID’s very capable
overseas C/AOs. We want you to recognize the special dedication by these men and
women to be away from the U.S. and perhaps their families while working overseas. So,
the next time you have the opportunity to meet one of them, I suggest you personally
express your appreciation of their service to USAID’s mission.
Because of the number of repostings this summer, it took extra effort on our part to
produce this listing, since no such list exists outside of USAID:
Africa:
Addis Ababa, Ethiopia: Gregory Taitt + one vacant position; USAID/West Africa based
in Accra: Yves Kore; Nairobi, Kenya (East Africa): John May, Tad Findeisen, Camille
Garcia, Lauralea Gilpin, Dan Harter, Linda McElroy, Joseph McGee, Charles Signer and
JoAnn Sparacino; Monrovia, Liberia: Brian Aaron; Maputo, Mozambique: James
Athanas and Doanh Van; Abuja, Nigeria: Jamala Ukwa; Dakar, Senegal: Beatrice Conde;
Regional Service Center/Southern Africa (RSC/SA), including South Africa: Martin
Fischer, Patrick Kollars, Dana Rose and Leona Sasinkova; Juba, Sudan: Andrew Holland
(TDY), Alan Garceau (presently TDY to Khartoum) and Rebecca White; Dar es Salaam,
Tanzania: Ken LuePhang and soon-to-arrive Jennifer Norling; and Kampala, Uganda:
Nathaniel Scott and Tracy Miller; Lusaka, Zambia: vacant with RSC/SA backstopping
Asia:
Kabul, Afghanistan: Roy Plucknett, Michael Askhouri, Javier Castano, Nataliya Holl,
Bruce McFarland, Charles Pope, Alvera Reichert, Robert Schmidt and Gerald Smith;
Dhaka, Bangladesh: Jennifer Crow-Yang and soon-to-arrive Leslie-Ann Burnette-
Badinga; New Delhi, India (also covering Sri Lanka): William Reynolds and Jim Norris;
Jakarta, Indonesia: Dale Lewis, Wanda Henry, Asuncion Juico and Craig Smith;
Islamabad, Pakistan: Arman Djahanbani (departing in November to become Director,
OAA) replaced by Geoffry Lohsl, Martha Aponte, Jorge Dulanto-Hassenstein, Mir
Ershadullah and soon-to-arrive Jonathan Palmer; Manila, Philippines: Michael Rossman
and Dion Glisan; and Bangkok, Thailand (RDM/Asia covering Burma, Cambodia, China,
Laos, Nepal, Thailand, Tibet, Timor/Leste, and Vietnam): Thomas Stephens, Craig
Riegler and Patrick Wilson with two DLIs: Matthew Cullinane and Aiyong (Paul) Seong
Middle East:
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Cairo, Egypt (also covering Lebanon, Morocco and Yemen): Anne Quinlan, Stan Canton,
Harvey Eichenfield and soon-to-arrive Joe Terrazas; Baghdad, Iraq: Jerry Kryschtal and
Mohammad Kamal Ayub; Amman, Jordan: Marjan Zamganeh; and West Bank/Gaza:
Bruce Gelband, Chitahka Floore, Claudia Koziol and Andrea Plucknett.
Latin America/Caribbean:
Bogota, Colombia: Neil Price, Adam Cox and Ronald C. Pearson (a DLI); Santo
Domingo, Dominican Republic (also covering Guyana and Jamaica): Luis Garcia and
Susan Scott-Vargas; San Salvador, El Salvador (covering Guatemala, Honduras, Mexico,
Nicaragua and Panama): David Brown, Luis Rivera, Aaron Ruble and William Sedlak;
Port-au-Prince, Haiti: Gary Juste, Philip Lamade and Richard Spencer; and Lima, Peru
(also covering Bolivia, Brazil, Ecuador and Paraguay): Sonila Hysi, Cynthia Shartzer and
Gregory Michael Junge
Europe & Eurasia:
Tbilisi, Georgia (also covering Armenia and Azerbaijan): Jonathan Chappell, John Lord,
and Brian Woody; Budapest, Hungary (Regional Service Center): Andrew Holland
(presently TDY to Juba; to be reassigned soon), Shirley Baldwin, Clement Bucher and
Eleanor TanPiengco; Almaty, Kazakhstan (covering CAR): Deborah Simms-Brown and
Ragheda Rabie; Moscow, Russia: Donella Russell and Ryan Weddle (a DLI); and Kiev,
Ukraine (also covering Belarus and Moldova): Karin Kolstrom and Jason Gilpin (a DLI).
UPCOMING SEMINARS
The Center for Development Excellence (CDE) announces the following seminar
schedule for the rest of 2011:
October
Washington, DC (Bethesda, MD) – 10/5/11
October 5: Mastering USAID’s Rules & Regulations
Washington, DC (Bethesda, MD) – 10/12/11
October 12: Preventing Fraud and Embezzlement in USAID Awards
November
Cape Town, South Africa – 10/31/11 – 11/4/11
October 31 - November 2: USAID/CDC Regulations & Policies
November 3 - 4: Financial Management of USAID/CDC Awards
Dar es Salaam, Tanzania – 11/7/11 – 11/11/11
November 7 - 9: USAID/CDC Regulations & Policies
November 10 - 11: Financial Management of USAID/CDC Awards
Port-au-Prince, Haiti – 11/7/11 – 11/9/11
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November 7 - 9: Doing Business with USAID (conducted in French/Kreyol)
For more information on these seminars, please consult:
http://www.cderesources.com/trainings/schedule.
Seminar Fees: 1-Day Seminar: US$450, 2-Day Seminar: $695, 3-Day Seminar: $795;
take a 10% discount when registration is for more than one course by the same
participant. Prepayment is required.
NEW MASTER’S CERTIFICATE PROGRAM
In recognition of the dedication and advanced knowledge of those participants who have
completed a comprehensive set of seminars in a select area, the Center for Development
Excellence has instituted a Master’s Certificate Program by conferring a Master’s
Certificate in USAID Financial Management, Master’s Certificate in USAID
Assistance Management, and a Master’s Certificate in USAID Contract
Management. These programs require completion of 70 hours of core and elective
seminars offered by the Center for Development Excellence, although required seminars
completed over the past three years will be recognized towards earning a master’s
certificate. More information on this Program and its requirements are posted on its
webpage at http://www.cderesources.com/courses_trainings/certificates.
ACCOUNTING, FIELD OFFICE FINANCE, PROCUREMENT, SUBGRANTING
AND OVERSEAS BENEFITS POLICIES MANUAL SOFTCOPY
The Center for Development Excellence’s "USAID Accounting Policies and Procedures
Manual Softcopy" with 177 policies and 51 processes and its 155-page "NGO Field
Office Finance Manual Softcopy" contain prewritten policies and procedures for an
organization's headquarters and field office accounting operations which will allow you
to customize your own policies and procedures manual in as little as a day. The price of
each is only US$395.
The Center for Development Excellence also offers a fully-featured “Procurement
Manual” to allow an organization to effectively subcontract for goods and services. This
package is suitable to meet the requirements of a contractor procurement system review
under FAR 44.3. For those making subgrants, its “Subgranting Manual” should come in
handy in managing the entire process of competing, awarding and administering
subgrants and subcooperative agreements. This manual reflects the recent changes in
USAID’s ADS 303 grantmaking procedures. Each of these manuals is US$395.
For those organizations with overseas-posted personnel, the Center for Development
Excellence offers a complete set of pre-written “Benefits Policies for Overseas
Employees” for expatriates, resident-hire U.S. citizens, third country nationals, key local
nationals and cooperating country nationals. These fully-researched policies comport to
the State Department’s Standardized Regulations, Foreign Affairs Manual and Foreign
Affairs Handbook as to allowances, differentials, pay and travel. Guidance is also
29
provided herein on which benefits other NGOs are providing their overseas staff. The
price of this softcopy package and guidance is only US$250.
Operated in a Windows environment, separate softcopy packages are available for
nonprofit organizations and for-profit concerns. You may inspect a sample of the
USAID Accounting Policies and Procedures Manual and the NGO Field Office Finance
Manual at: http://www.cderesources.com/products.
WRITING/UPDATING ACCOUNTING POLICIES AND PROCEDURES
Using the softcopy of NGO Accounting Policies and Procedures which he designed, Mr.
Stross would serve on a contract basis to write or update an organization’s official
accounting, cash management, cost recovery, finance, grant-making, overseas benefits for
expats, TCNs and LNs, purchasing and procurement, property management,
subgrantee/contractor management, timekeeping, travel and transportation, and closeout
policies as well as institute a sound set of internal control procedures. For this, he would
draw upon his significant experience with OMB Circulars, the FAR, USAID Reg. 26 &
28, AIDAR, Automated Directives System, and the various updating CIBs/AAPDs.
INDIRECT COST RATE PROPOSAL PREPARATION AND NEGOTIATION OF
NICRAs
Mr. Stross is an expert in preparing indirect cost rate proposals, establishing separate
Facilities and Administration (F&A) rates, negotiating NICRAs with USAID's Overhead
Branch, conducting sensitivity analyses of optimum cost recovery structures,
restructuring indirect costs, preparing Cost Accounting Standards (CAS) Disclosure
Statements, and conducting fiscal assessments of an organization’s indirect costs.
COMPLIANCE SERVICES
On a contract basis, Mr. Stross, CPA, with over 30 years of experience in advising
organizations on how to withstand audit disallowances, and 15 years with specific
USAID regulatory experience, would conduct a vulnerability assessment of the
organization’s compliance with USAID’s rules and regulations, prepare its policies and
procedures, train its key personnel in USAID’s compliance requirements, and conduct
periodic, risk-based compliance testing of agreed upon high-risk areas, reporting the
results confidentially to the organization’s CFO, CEO or Finance/Audit Committee.
VALIDATION OF FIELD OFFICE CONTROLS
In this post-AED-suspension period of heightened concern over the adequacy of NGO
and contractor headquarters’ controls over field offices, Mr. Stross could either test the
adequacy of these headquarters’ internal accounting and compliance controls or, with a
team of accounting/compliance specialists, actually test the effectiveness of these
controls at a sampling of the organization’s field offices.
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AUDIT RESOLUTION
In responding to an OMB Circular A-133, recipient-contracted or DCAA or OIG audit,
Mr. Stross can apply his extensive knowledge of authoritative U.S. Government and
USAID rules in challenging questioned costs. His expertise is so well regarded that even
USAID itself retained him to rebut the major findings in one of its own IG audit reports.
He has also consulted with a host of NGOs and contractors in responding to, and
negotiating, their audit findings.
INTERNET-BASED CONSULTING
Either over the Internet or by telephone, Robert Stross, who prepares this Newsletter and
has over 42 years in the Federal marketplace, provides consultations under retainer to a
limited number of NGOs on the range of accounting, bidding, pricing, indirect costing,
teaming and contracting, regulatory compliance, and audit resolution issues involving
USAID. Inquire about this service and his low initial retainer and hourly rate.
Please consult our homepage at http://www.robertstrosschartered.net for more details on
these consulting services.
© Copyright. Robert Stross Chartered, Inc. All rights reserved. 2011
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NGO Financial Newsletter is written and edited by Robert E. Stross, CPA, and published
monthly by Robert Stross Chartered, Inc., 12713 Steeple Chase Way, Potomac, MD
20854-2340, Tel. 301-424-3254, FAX: 240-328-1009,
e-mail:[email protected] Robert Stross Chartered’s Home Page:
http://www.robertstrosschartered.net. Price: US$250 a year for an individual
subscription; for an organization subscription: $350 for 1-5 users, $450 for 6-25, and
$550 for over 25 users from the same organization.
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