financial audit ofthe science and technology cooperation

11,1111,1;1111111,1111 IIIUII II

po f+~ I'n- - '6 1-- bRegional Inspector General for Audit '1 C? 2- g S-

Cairo, Egypt

Financial Audit of the Science and TechnologyCooperation, Expenditures Incurred Under theScientific Research and Technology Cooperation

Project (USAIDlEgypt Project No. 263-0140)

Report No. 6-263-96-21-NMay 16,1996

I II I Iiillllli I ,I ~ I L;

USAID

*** **'* *

CAIRO, EGYPT

MEMORANDUM

UNITED STATES OF 'AMERICAAGENCY FOR INTERNATIONAL DEVELOPMENT

OFFICE OF THE REGIONAL INSPECTOR GENERAUAUDIT

May 16, 1996

TO:

FRruv.f:

SUBJECT:

DIRECTOR USAID/Egypt, John R. Westley

RIG/AlC, Lou Mundy ~tM:Financial Audit of the Science and Technology Cooperation, ExpendituresIncurred Under the Scientific Research and Technology Cooperation Project(USAID/ Egypt Project No. 263-0140)

The attached report, transmitted March 17, 1996, by KPMG Hazem Hassan, presents the resultsof a fmancial audit of the Science and Technology Cooperation (STC) under ProjectImplementation Letters Nos. 4 and 7 of the Scientific Research and Technology CooperationProject, USAID/Egypt Project No. 263-0140. The objectives of PIL Nos. 4 and 7 are tosupport the activities of STC's management system and to redirect Egyptian science andtechnology programs to solving critical production problems of public and private industries.

We engaged KPMG',Hazem Hassan to perform a fmancial audit of STC's incurred expendituresof $509,371 for the period October 1, 1992 through November 30, 1994 for PIL No.4 and$251,439 for the period November 1, 1991 through February 28, 1995 for PIL No.7. Thepurpose of the audit was to evaluate the propriety of costs incurred during this period. KPMGHazem Hassan also evaluated STC's internal controls and its compliance with applicable laws,regulations and agreement terms as necessary, in forming their opinion regarding the FundAccquntability Statement.

The audit report questions $204 and $630 in costs billed to USAID/Egypt by the STC under PILNos. 4 and 7 respectively. The auditors did not note any material weaknesses in STC's internalcontrol structure nor any material instances of noncompliance with applicable laws, regulationsand agreement terms. The auditors did note, however, two reportable conditions in STC'sinternal controls.

U.S. Mailing AddressUSAID-RIG/A/C Una 64902

,tPO AE 09839-4902

Tel. Couri1ry Code (202)357-3909

FilI # (202) 355-4318

#106 Kasr EL Aini St.,Cairo Center Building,

Garden City, Cairo, Egypt

I 111,111111111,11,,1,111111,

Mun4,ylWestley Memorandum-Fitulncial Audit of theScience and Technology Cooperation Page 2

In response to the draft report, responsible STC officials provided additional explanation to thereport fmdings. KPMG Hazem Hassan officials reviewed STC's response to the fmdings andwhere applicable made adjustments to the report or provided further clarification of their position(see Appendices I and IT).

The following recommendation is included in the Office of the Inspector General'srecommendation follow-up system.

Recommendation No.1: We recommend that USAID/Egypt resolve the questionedcosts of $834 (ineligible costs of $564 and unsupported costs of $270) detailed onpages 14 through 18 of the KPMG Hazem Hassan audit report, and recover fromthe Science and Technology Cooperation the amounts determined to beunallowable.

In its response to the audit report, the Mission determined that $321 of the costs questioned isconsidered allowable. The remaining questioned costs of $513 is sustained and deducted fromtwo vouchers billed by STC to USAID/Egypt (see Appendix ill). Therefore, recommendationNo.1 is resolved and closed.

The reportable conditions identified by the auditor's review of STC's internal control structureshould be handled directly between Mission and STC officials.

Thank you for the cooperation and assistance extended to the audit staff on this engagement andyour continued support of the fmancial audit program in Egypt.

Attachment: ats

I" II, ,I Illi~JlLIIJ J,!.IlilIIIJlJII .11

Financial Audit of theScience and Techno10qv Cooperation

(STC)Proi ect Implementat ion Letters (PILs) Nos. 4 and 7

Onder the Scientific Relearch and TechnologyCooperation Project No.263-0140.01for the Period from October 1. 1992

through Noyember 30. 1994 for PIL No.4 andfrom Noyember i. 1991 throuah February 28, 1995 for

PIL No.7

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I. II ,I 11I,1111,11,,1,1 ,UJ,!,

KPMG Hazem Hassan

11111II11.-., II

rinancial Audit of theScience and Technology Cooperation

(STC)Project Implementation Letter, (PIL,) Nos.' and 7

Under the Scientific aeaearch and TechnologyCooperation Project No.~63-01'0.01

for the Period from October 1, 1992through November 30. 1994 for 'XL No.4 and

from Novemher i. 1991 through lebruary 28, 1995 forPXL No.7

Table of Contents

Page

Introduction

BackgroundAudit Objectives and ScopeResults of AuditManagement Comment

Fund Accountability Statements

Independent Auditor'S ReportFund Accountability Statements and NotesDetails of Questioned Costs

Internal Control Structure

Independent Auditor'S Report

Compliance with Laws and Regulations

Independent Auditor'S Report

Follow-up on the preyioua NrA Report

APpendices

1245

79

14

19

23

26

Appendix IAppendix IIAppendix III

STC's Management ResponseAuditor'S CommentsMission'S Comments

I. 11;1 1IIIilllll.I :I,J!.I

rJr~8 Hazem HassanPublic Accountants &Consultants

111911111III__ 11

72 Mohi Eldin Abul Ezz StreetMohandseen, CairoEgypt

Telephone: (202) 3499588·3499677Telefax: (202) 3497224·3487819Telex : 20457 (hhco • un)

Mr. Lou MundyRegional Inspector General for Audit-CairoUnited States Agency for International DevelopmentCairo, Egypt.

March 17, 1996

Dear Mr. Mundy,

This report represents the results of our financial audit ofthe Science and Technology Cooperation (STC) pursuant toproject Implementation Letters (PILs) Nos.4 and 7 under theScientific Research and Technology Cooperation ProjectNo.263-0140.01 for the periods from October 1, 1992 throughNovember 30, 1994 for PIL No. 4 and from November 1, 1991through February 28, 1995 for PIL No.7.

BackgrQund

The proj ect is directly administered by the Academy ofScientific Research and Technology (ASRT) and financedthrough Project Implementation Letters (PILS) Nos.4 and 7.

The objective of PIL No.4 is to support the activities ofthe management system of the Scientific and TechnologyCooperation Project (STC). The objective of PIL No.7 is toredirect Egyptian Science and Technology programs to solvingcritical production problems of public and privateindustries.

On June 26, 1988 and October 25, 1989 USAID/Egypt initiatedPILs Nos.4 and 7 respectively.

1

Member Firm 01• Klynveld Peat Marwoek Goerdeler

II .1 UIIIIIIII IIII1

KPMG Hazem Hassan

Both PILs were amended several times. On September 5, 1994amendment No .10 for PIL No.4 was issued to increase thebudget to LE4,459,000 (equivalent to $1,328,665) and the PILcompletion date became September 30, 1995.

Amendment No.9 was issued on September 5, 1994 for PILto increase the budget to $450, 000. On Oc tober 4,amendment No.10 was issued to extend the PIL completionto September 30, 1995.

NO.71994date

A non-Federal audit was conducted for the Project and anaudit report was issued on February 7, 1993. This report wasfor the period from June 26, 1988 through September 30, 1992for PIL No.4 only.

Audit Obi ectiyes and SCODe

The objective of this engagement was to conduct a financialaudit of USAID/Egypt's resources, provided pursuant to PILsNos.4 and 7 under the Scientific Research and TechnologyCooperation Proj ect No. 263 -0140.01. These resources weremanaged by STC. The audit covered the period from October 1,1992 through November 30, 1994 for PIL No.4 and fromNovember 1, 1991 through February 28, 1995 for PIL No.7. Theaudit encompassed an examination of STC expenses and whetherthey were in compliance with the terms of the PILs and areview of the internal controls.

The specific objectives were to:

1. express an opinion on whether the fund accountabilitystatements for the USAID financed project of STCpresent fairly, in all material respects, proj ectrevenues received and costs incurred for the periodsunder audit, in conformity with generally acceptedaccounting principles or other comprehensive bases ofaccounting, including the cash receipts anddisbursements basis and modifications of the cashbasis;

2. determine if the costs reported as incurred underagreement are, in fact, allowable, allocable,reasonable in accordance with the terms ofagreement;

2

theandthe

I II IIIIIIILIIIIIII:I

KPMG Hazem Hassan

IILUlII._.11

3. evaluate and obtain a sufficient understanding of theinternal control structure of STC, assess control risk,and identify reportable conditions, including materialinternal control weaknesses; and

4. perform tests to determine whether STC complied, in allmaterial respects, with the agreement terms andapplicable laws and regulations;

Preliminary planning and review procedures started in July1995 and consisted of:

• discussions with RIG/A/C;

• a review of the PILs;

• interviews and discussions with the STC key personnelconcerning the status of the PILS, accomplishments duringthe period, the statutory reporting requirements, thebudgets of the PILs, procedures governing actualexpenditures by STC and reimbursement by USAID;

• reviews of the STC organizational structure, procurementand personnel manuals, financial and accounting policies,and procedures manual.

The field work was completed on October 1, 1995. The scopeof our work was to audit. costs incurred by STC andreimbursed by USAID/Egypt under PILs Nos. 4 and 7. Wi thineach budget line item, we selected amounts for testing on ajudgmental basis to test the majority of the relatedamounts. We tested expenditures of $65,021 out of totalexpenditures amounting to $251,439 for PIL No.7. andLE417,280 (equivalent to $124,338) out of total expendituresamounting to LEI, 709,450 (equivalent to $509,371) for PILNo.4.

Our tests of expenditures included, but were not limited to,the following:

1. Reconciling STC's accounting records to invoices issuedto USAID/Egypt and testing costs for allowability,allocability, reasonableness, and appropriate support;

2. Determining whether payroll costs were appropriate andconformed with the terms of the PILs and the relevantregulations;

3

I 1111 1111111111111111.

KPMG Hazem Hassan

3. Determining whether meetings, consulting, equipment,travel, special studies and contingency charges wereadequately supported and approved;

4. Checking the adequacy of STC I S control over proj ectequipment funded by USAID/Egypt.

Except as discussed in the following paragraph, we conductedour audit in accordance with generally accepted. auditingstandards and Goyernment Auditing Standards, issued by theComptroller General of the United States. These standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the fund accountabilitystatements are free of material misstatement.

We' did not have an external quality control review by anunaffiliated audit organization, as required by paragraph 33of Chapter 3 of Goyernment Auditing Standards, because nosuch quality control review program is offered byprofessional organizations in Egypt. We believe that theeffect of this departure from the financial auditrequirements of Goyernment Auditing Standards is notmaterial because we have partic~~ated in the KPMG worldwideinternal quality control program. This program requires ouroffice to be subjected, every two years, to an extensivequality control review by partners and managers from otherKPMG offices.

As part of our examination, we made a study and evaluationof relevant internal controls and reviewed STC's compliancewith applicable laws and regulations.

Result s of Audit

PIL No.4 Fund accountability statement

Our audit identified questioned costs totalling $204(equivalent to LE686) which are considered as ineligiblecosts.

PIL No.7 Fund accountability statement

Our audit identified questioned costs totalling $630 whichare divided into ineligible costs amounting to $360 and anunspported cost of $270.

4

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KPMG Hazem Hassan

Internal Control

III~I._._II

Our audit identified the following reportable conditions:

• Fund reconciliations for PIL No.4 were not prepared .• STC does not maintain a chart of accounts.

Compliance with Laws and Regulations

Our tests of compliance disclosed certain instances ofnoncompliance with the terms of PIL No.4 regarding theallowability, allocability and reasonableness of costscharged to USAID/Egypt. These instances are not consideredto be material instances of noncompliance.

Follow-up on the Preyious NlA Report

We have followed up on the findings and recommendationsidentified in the previous NFA report for the period fromJune 26, 1988 through September 30, 1992 for PIL No.4, asrequired by paragraph 10 of Chapter 4 of Goyernment AuditingStandards.

Findings and recommendations that may affect the fundaccountability statement have been considered during ouraudit. Findings resolved and recommendations implemented, toour satisfaction, have not been mentioned in this report.

Supplementary Information

The supplementary fund accountability statements, presentedin the functional currency, and schedules of questionedcosts including dates, number of vouchers and amounts werecommunicated to STC' s management and are available uponrequest.

Management Comment

We. have reviewed STC I S response to the Questioned CostsIncurred, which is included as Appendix I. Where applicable,we have made adjustments in our report or provided furtherclarification of our position in Appendix II. For thoseitems not adjusted in the final report, the responsesprovided by STC's management have not changed ourunderstanding of the fund accountabilty statementsreportable conditions and material weaknesses in the Reporton Internal Control Structure or our findings in the Reporton Compliance with Laws and Regulations.

5

I 1IIIIIIIIIlIIDil

KPMG Hazem Hassan

This report is solely intended for the use of the UnitedStates Agency for International Development and may not besuitable for any other purpose.

~Hazem Hassan & Co.Cairo, Egypt

6

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~. W;.$i1 ~{",~ M'{

KPMG Hazem Hassan

,1111111-_., II

Public Accountants & Consultants


Telephone: (202) 3499588 - 3499677Teletax : (202) 3497224 - 3487819Telex : 20457 (hhco - un)

Renort on lund Accountability StatementsIndependent Auditor 1 , Report


We have audited the accompanying fund accountabilitystatements of the Science and Technology Cooperation (STC)pursuant to the Project Implementation Letters (PILs) Nos.4and 7 under the Scientific Research and Technologycooperation proj ect No. 263 -0140.01 for the period fromOctober 1, 1992 through November 30, 1994 for PIL No.4 andfrom November 1, 1991 through February 28, 1995 for PILNo.7. These statements are the responsibility of STC 'smanagement. Our responsibility is to express an opinion onthese statements based upon our audit.

Except as discussed in the following paragraph, we conductedour audit in accordance with generally accepted auditingstandards and Goyernment Auditing Standards, issued by theComptroller General of the United States. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the fund accountabilitystatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting theamounts and disclosures in the fund accountabilitystatements. An audit also includes assessing the accountingprinciples used and significant estimates made bymanagement, as well as evaluating the presentation of theoverall fund accountability statements presentation. Webelieve that our audit provides a reasonable basis for ouropinion.

We did not have an external quality control review by anunaffiliated audit organization, as required by paragraph 33

7

Member Firm orKlynveld Peal Marwick Goerdeler

11.11IiI111111L11111.

KPMG Hazem Hassan

of Chapter 3 of Goyernment Auditina Standards, because nosuch quality control review program is offered byprofessional organizations in Egypt. We believe that theeffect of this departure from the financial auditrequirements of Goyernment Auditing Standards is notmaterial because we have participated in the KPMG worldwideinternal quality control program. This program requires ouroffice to be subjected, every two years, to an extensivequality control review by partners and managers from otherKPMG offices.

The aforementioned fund accountability statements do notinclude the cost of USAID/Egypt I s direct procurement ofvehicles, equipment, and technical assistance provided byUSAID/Egypt directly to STC or the total revenues and costsincurred by STC on an organization-wide basis.

As described in Note 1, the accompanying fund accountabilitystatements have been prepared on the cash basis, which is acomprehensive basis of accounting other than the generallyaccepted accounting principles. Included in the fundaccountability statements are questioned costs of $204 and$630 relating to the Project Implementation Letters (PILs)Nos.4 and 7, respectively. The basis for questioning thesecosts is more fully described in the ·Details of QuestionedCosts· section of this report.

In our opinion, except for the effects of the questionedcos ts as discussed in the preceding paragraph, the fundaccountability statements referred to above present fairly,in all material respects, the amounts received and the costsincurred pursuant to the Proj ect Implementation Letters(PILs) Nos.4 and 7 under the Scientific Research andTechnology Cooperation project No.263-0140.01 for the periodfrom October 1, 1992 through November 30, 1994 for PIL No.4and from November 1, 1991 through February 28, 1995 for PILNo.7 in conformity with the basis of accounting described inNote 1.

& Co.

October 1, 1995

8

USAID/Egypt fund received

THB SCIBHTIrIC ARC TBCBHOLOOY CooPBRATION (STe)Fund Accountability Statement of Project Xmplementation Letter (PIL) No.'

UDder the Science and Technology Cooperation Project No. 263-01'0.01

ror the Period from October 1, 1992 through November 30, 199'

~486,233

OUe.tiOPed Co,t,

Salaries 790,226 308,631

Meetings 17,878 906

Consulting 73,004 11,779

Equipment & Supplies 153,456 29,055

Travel & Training 49,166 22,425

Special Studies 161,502 89,699

Contingency & Misc. 83,433 46,876

Total Bxpenditure, __ 1,328,665 509,371

rWing 10•• PgI

~j

,j;j

-;

1pM4iture,

Expenditures over revenues

OSAID/Bgypt Fund balanceat of November 30, 199'

Budget

~

Actual

~

23,138

(23,138)

Ineligible

~

45

71

88

20'

tln,upporte4

~

2. b

4. a & b

5. c & d

Pg. 14

Pg. 15

Pg. 16

!~

• The accompanying notes are an integral part of the fund accountability statement.

9

USAID/Egypt fund received

TBK SCIBRTIFIC ARD TBCRROLOOY COOPBRATIO. (STe)Fund Accountability Statement of Proj.ct ~lementatiODLttt.r (PIL) Ro.7

ODder the Science and T.chnology Cooperation Proj.ct Bo. 263-01'0.01

For the P.riod from Rovembtr 1, 1991 through February 28, 1995

~273,705

Qy••t10ned COlt.

lpep,ditur•• Budg.t

~

Actual

~

In.ligibl.

~

UA.upporttd

~

rinding Ro•• Ig.

Travel and Consultants

Total Bxpenditur••

Revenues over expenditures

Line of Credit in NIB

USAID/Bgypt Pund balanc.a. of February 28, 1995

450,000

'50,000

251,439

251,'39

22,266

12,913

35,179

360

360

270

270

1. c & d Pg. 18

* The accompanying notes are an integral part of the fund accountability statement.

10

I" II ,I LII.~JlI.II.I ,I ,~I/' I Ill.tIIIl...._11

Scientific and Technology Cooperation(STC)

Fund Accountability StatementsPro1 ect Implementation Letters (PILs) Nos. 4. and 7

Notes to the Fund Acgountability Statements

Notel: Accounting Basis

The fund accountability statements have beenprepared on the basis of cash receipts anddisbursements. Consequently, revenues arerecognized when they are actually received andexpenditures are recognized when they are actuallypaid.

Note 2: Basis of Presentation

The fund accountability statements are therepresentation of STC I S management and are theresponsibility of the said management. The"Questioned Costs" columns represent the auditresults and are included in the fundaccountability statements for presentationpurposes only.

Note 3: Translation Rate

The expenditures of PIL No.4, which were paid inEgyptian Pounds (LE), have been translated into usDollars ($). The period average exchange ratemethod was used. This rate is $1 = LE3.356. Theoriginal currency of PIL No.7 is us dollars.

Note 4.: Ouestioned Cost.

Questioned Costs are presented in two separatecategories ineligible or unsupported andconsist of audit findings made on the basis of theterms of the PILs and related regulations, whichprescribe the nature and treatment of reimbursable

11

11,,1 U111111,11,,: i Ill,1111••__.,11

costs. Costs in the column labeled -Ineligibleare supported by vouchers or other documentationbut are ineligible for reimbursement because theyare either unreasonable, not program related, orare prohibited b¥ the PILs or applicable laws andregulations.

Costs in the column labeled -Unsupported- are alsoincluded in the classification of -QuestionedCosts - and are related to costs that .are notsupported by adequate documentation. Allquestioned costs are detailed in the -Details ofQuestioned Costs- section of this report.

Note 5: USAID/Egypt funds received

USAID/Egypt's funds received represent thosereceived for the audited period from October 1,1992 through November 30, 1994 for PIL No.4 andfrom November 1, 1991 through February 28, 1995for PIL No.7.

Note 6: LineBank

of Credit in the National(NIB) for PIL No.4

Inyestment

STC have one bank account for both PIL No.4 andthe LE portion of PIL No.7. The LE portion of PILNo.7, was not included in the audit scope of work.Both PILs have one line of credit. Although thebank reconciliation was agreed to the bankstatement, we were unable to separate between theline of credit for each PIL.

Note 7: Line of Credit in the National Bank of Egyptfor PIL No.7

On November 2, 1990 the National Bank of Egyptopened a line of credit for the project amountingto $40,000.

During the period from November 2, 1990 throughOctober 31, 1991, STC used an amount of $27,087 tocover the expenditures incurred in excess of thefunds received from USAID/Egypt during the period.Consequently, the line of credit balance as ofNovember 1, 1991 was $12,913.

12

I" 11;1 lll;~III,II,.1 J ,~,III

Note 8: Budget

The budget represents USAID/Egypt's approvedbudget in accordance with the most recentamendments of the PILs Nos.4 and 7 which were madewithin the audited period. It includes the totalbudget of the project from June 26, 1988 throughNovember 30, 1994 for PIL No.4 and from October25, 1989 through February 28, 1995 for PIL No.7.

13

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KPMG Hazem Hassan

Details of Que.tioned Co.t.Proiect Implementation Letter No.4

Fund Accountability Statement

Item De.cription

1. Salaries

a) Based on documents andclarifications provided to us,subsequent to the issuance of thedraft report, this finding hasbeen removed.

b) Based on documents andclarifications provided to us,subsequent to the issuance of thedraft report, this finding hasbeen removed.

Total line item

2. Consulting


Questioned CostsIneligible Unsupported

.l .l

b) The amount billed to USAID/Egyptwas $130. The actual amount paidto the consultant was $85. Thedifference is $45, which isconsidered to be unallowable. 45

Total Line Item

14

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KPMG Hazem Hassan

Item Desgription

3. Iquipment and Supplies

III~II II

Questioned CostsIneliaible Unsupported

J. J.


Total line item

4. Trayel and Traininq

a) This amount represents an amountin excess of USAID/Egypt I S perdiem rates for local travel. NoUSAID/Egypt approval is availablefor this excessive amount.Therefore, this amount isconsidered to be unallowable. 51

b) This amount represents taxes paidto a Hotel. Article 46,Attachment B of OMB CircularNo. A-122 states that taxes arenot allowable. Therefore, thisamount is considered to beunallowable.

Total Line Item

15

20

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KPMG Hazem Hassan

Item Description

5. Special Studies



Ouestioned CostsIneligible unsupported

J. J.

c) This amount represents taxes paidto a Hotel. Article 46,Attachment B of OMB CircularNo .A-122 states that taxes arenot allowable. Therefore, thisamount is considered to be 73unallowable.

d) This amount represents an amountin excess of USAID/Egypt I s perdiem rates for local travel.There was no approval given byUSAID/Egypt for this excessiveamount. Therefore, this amount isconsidered to be unallowable. 15

Total Line Item

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KPMG Hazem Hassan

Item Desgription

6. Cont ingengy and "ise .

1111111 11

Questioned CostsIneligible unsupported

.l .l


Total Line Item

Total Questioned Costs

./

17

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KPMG Hazem Hassan

Details of Questioned CostsProjegt Implementation Letter No.7

lund Accountability Statement

Item Description

1. Trayel and Consultant.



c) This amount represents taxes onair tickets. Article 46,Attachment B of OMB CircularNo .A-122 states that taxes arenot allowable. Therefore, thisamount is considered to beunallowable.

d) This amount represents lodgingexpenses for an investigatorduring his trip to the USA. Nosupporting documents wereavailable to support thisexpense. Therefore, we consider

, this amount to be unsupported.

Total Line ItemTotal Que.tioned Costs

18

Questioned CostsIneligible 'Unsupported

J. .s.

360

270

270270=

I I II ;I lII,llIlll.I..I.UJiIi.1111111 11



Telephone: (202) 3499588·3499677Telefax: (202) 3497224 - 3487819Telex : 20457 (hhco - un)

Report on the Internal COntrol StructureIndependent Auditor·, Report


We have audited the accompanying fund accountabilitystatements of the Science and Technology Cooperation (STC)for Project Implementation Letters (PILs) Nos.4 and 7 underthe Scientific Research and Technology Cooperation ProjectNo.263-0140.01 for the period from October 1, 1992 throughNovember 30, 1994 for PIL No.4 and from November 1, 1991through February 28, 1995 for PIL No.7, and have issued ourreport thereon on October 1, 1995.

Except as discussed in the following paragraph, we conductedour audit in accordance with generally accepted auditingstandards and Goyernment Auditing Standards, issued by theComptroller General of the United States. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the fund accountabilitystatements are free of material misstatement.

We did not have an external quality control review by anunaffiliated audit organization, as required by paragraph 33of Chapter 3 of Goyernment Auditing Standards, because nosuch quality control review program is offered byprofessional organizations in Egypt. We believe that theeffect of this departure from the financial auditrequirements of Goyernment Auditing Standards is notmaterial because we have participated in the KPMG worldwideinternal quality control program. This program requires ouroffice to be subjected, every two years, to an extensivequality control review by partners and managers from otherKPMG offices.

The management of STC is responsible for establishing andmaintaining an internal control structure. In fulfillingthis responsibility, estimates and judgments by management

19

Member Firm ofKlynveld Peat MalWlck Goerdeler

,--_..._.., ..... "......

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KPMG Hazem Hassan

are required to assess the expected benefits and relatedcosts of internal control structure policies and procedures.The objectives of an internal control structure are toprovide management with reasonable, but not absolute,assurance that assets are safeguarded against loss fromunauthorized use or disposition, and that the transactionsare executed in accordance with the management'sauthorization and recorded properly to permit thepreparation of fund accountability statements in accordancewith the cash basis of accounting. Because of the inherentlimitations in any internal control structure, errors orirregularities may nevertheless occur and not be detected.Also, proj ection of any evaluation of the structure tofuture periods is subject to the risk that procedures maybecome inadequate because of changes in conditions or thatthe effectiveness of the design and operation of policiesand procedures may deteriorate.

In planning and performing our audit of the fundaccountability statements of the Science and TechnologyCooperation (STC) for Project Implementation Letters (PILS)Nos.4 and 7 under the Scientific Research and TechnologyCooperation Project No. 263 -0140.01 for the period fromOctober 1, 1992 through November 30, 1994 for PIL No.4 andfrom November I, 1991 through February 28, 1995 for PILNo.7, we obtained an understanding of the internal controlstructure. With respect to the internal control structure,we obtained an understanding of the design of relevantpolicies and procedures and whether they have been placed inoperation, and we assessed control risk in order todetermine our auditing procedures for the purpose ofexpressing our opinion on the fund accountability statementsand not to provide an opinion on the internal controlstructure. Accordingly, we do not express such an opinion.

We noted certain matters, involving the internal controlstructure and its operation that we consider to be areportable condition under standards established by theAmerican Institute of Certified Public Accountants.Reportable conditions involve matters coming to ourattention relating to significant deficiencies in the designor operation of the internal control structure that, in ourjudgment, could adversely affect the entity's ability torecord, process, summarize, and report financial dataconsistent with the assertions of management in the fundaccountability statements. Our audit disclosed the followingreportable conditions:

20

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KPMG Hazem Hassan

rinding No.1

ill~I.IU•• 11

Based on documents and clarifications provided to us,subsequent to the issuance of the draft report, this findinghas been removed.

Finding No.2

A fund reconciliation between the fund balance and the bankbalance, as per books, was not prepared.

A sound internal control system requires that fundreconciliations be prepared in order to insure that cashdisbursements and revenues received from USAID/Egypt havebeen recorded.

STC I S management believes that bank reconciliations areadequate to control all cash disbursements and cashreceipts.

The lack of fund reconciliations may impairpresentation of the fund balance as peraccountability statement.

thethe

fairfund

We recommend that STC's management prepare fundreconciliations on a timely basis.

rinding No.3

During our audit we noted that STC does not maintain adetailed accounting manual.

A detailed accounting manual should be prepared in order todetermine what should be charged on each line item.

STC' s management asserts that they rely upon budget lineitems in determining costs charged on each line item.

The lack of such an accounting manual led to themisclassification of certain costs among line items.Although these misclassifications have no financial effect,they impair the presentation of the fund accountabilitystatements.

We recommend that STC develop an accounting manual detailingthe types of costs to be included in each budget line item.

******************************

A material weakness is a condition in which the design oroperation of one or more of the specific internal control

21

I II ,I IIII~III.II, ;1, ~llj, I

KPMG Hazem Hassan

elements does not reduce to a relatively low level the riskthat errors or irregularities in amounts that would bematerial in relation to the fund accountability statementsbeing audited may occur and not be detected within a timelyperiod by employees in the normal course of performing theirassigned functions.

Our consideration of the internal control structure wouldnot necessarily disclose all matters in the internal controlstructure that might be reportable conditions and,accordingly, would not necessarily disclose all reportableconditions that are also considered to be materialweaknesses as defined above. However, we believe that thereportable conditions described above are not materialweaknesses.

We also noted another matter involving the internal controlstructure and its operation that we have reported to themanagement of STC in a separate letter dated October 1,1995.

This report is intended for the information of STC' smanagement and others within the organization and the UnitedStates Agency for International Development. However, thisreport is a matter of public record, and its distribution isnot limited.

& Co.

October 1, 1995

22

I III III,LIII.II..I, ,I,,~U Illdll._.11



Telephone: (202) 3499588·3499677Telefax: (202) 3497224 • 3487819Telex : 20457 (hhco • un)

Report on ComplianceIndependent

with LaysAuditor's

and Reau1ationsReport


We have audited the accompanying fund accountabilitystatements of the Science and Technology Cooperation (STC)pursuant to the Project Implementation Letters (PILs) Nos.4and 7 under the Scientific Research and TechnologyCooperation Project No.263-0140.01 for the period fromOctober 1, 1992 through November 30, 1994 for PIL No.4 andfrom November 1, 1991 through February 28, 1995 for PILNo.7, and have issued our report thereon on October 1, 1995.

Except as discussed in the following paragraph, we conductedour audit in accordance with generally accepted auditingstandards and Government Auditing Standards, issued by theComptroller General of the United States. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the fund accountabilitystatements are free of material misstatement.

We did not have an external quality control review by anunaffiliated audit organization, as required by paragraph 33ot' Chapter 3 of Goyernment Auditing Standards, because nosuch quality control review program is offered byprofessional organizations in Egypt. We believe that theeffect of this departure from the financial auditrequirements of Goyernment Auditing Standards is notmaterial because we have participated in the KPMG worldwideinternal quality control program. This program requires ouroffice to be subjected, every two years J to an extensivequality control review by partners and managers from otherKPMG offices.

23

Member Finn orKlynveld Peat Marwick Goerdeler

ill" ,I IIII~III.II"I, J ,Ill :1:

KPMG Hazem Hassan

Compliance with laws, regulations, contracts, and grantsapplicable to STC is the responsibility of STC's management.As part of obtaining reasonable assurance about whether thefund accountability statements are free of materialmisstatement, we performed tests of STC's compliance withcertain provisions of laws, regulations, contracts, andgrants. However, the objective of our audit of the fundaccountability statements was not to provide an opinion onoverall compliance with such provisions. Accordingly, we donot express such an opinion.

The results of our tests disclosed one instance ofnoncompliance that is required to be reported herein underGoyernment Auditing Standards. This instance is as follows:

1. Instance of non-compliance with the provisions ofthe PILs Nos. 4 and 7« and aKa Circular No. A-122

During our audit we noted that STC paid and chargedUSAID/Egypt certain costs that are not in compliancewith the PILs provisions or OMB Circular No.A-122.

PILs Nos.4 and 7 listed the exact amounts and type ofcosts which should have been charged to USAID/Egypt.

STC I S management believed that these amounts wereessential to carry out its activites and thereforechargeable to USAID/Egypt.

We recommend that STC obtain USAID/Egypt approval forthe amounts exceeding the budget, and take the correctactions for the unallowable costs charged to USAID.

*************************

We consider the instance of non-compliance in formingour opinion on whether STC's fund accountabilitystatements pursuant to the Project ImplementationLetters (PILs) Nos.4 and 7 under the Scientific Researchand Technology Cooperation Project No.263-0140.01 forthe period from October 1, 1992 through November 30,1994 for PIL No.4 and from November 1, 1991 throughFebruary 28, 1995 for PIL No.7, are presented fairly, inall material respects, in conformity with GenerallyAccepted Accounting Principles, and this report does notaffect our report dated October 1, 1995 on the fundaccountability statements.

24

I. III 1111~j1LILI ;1, ,IIU

KPMG Hazem Hassan

1111111••• 11

This report is intended for the information of STC I Smanagement and others within the organization and the unitedStates Agency for International Development. However, thisreport is a matter of public record, and its distribution isnot limited.

" ~-'-""'"'~--

~Hazem Hassan & Co.Cairo, Egypt

October 1, 1995

25

I. Iii ,I 1111~IILII,.1 :1, ,IIU

...... ~--;:"".KPMG Hazem Hassan

Illa.I••• 11

Follow-up on the Preyiau. NlA Report

We have followed up on the findings and recommendationsidentified in the previous NFA report for the period fromJune 26, 1988 through September 30, 1992 for PIL No.4, asrequired b¥ paragraph 10 of Chapter 4 of Goyernment AuditinaStandards.

Findings and recommendations that may affect' the fundaccountability statement have been considered during ouraudit. Findings resolveQ and recommendations implemented, toour satisfaction, have hot been mentioned in this report.

26

I 11"lllliWIII.II·.IillIJ,l,

STe'sAPPBHPI:I

KANAGBKBNT

III~I._._II

I:RISPONSB

I, II ,I 1111~111.11..I II ,LlJ iii1119111 II

Response to the Draft NFA Report onScience and Technology Cooperation (SrrC),

PILs 4 and 7, Local Expenditures Incurred under theScience and Technology Cooperation,

Project No. 263-0140.01.

111.11......111

Project Implementation Letter No.4

I . II ,I lII:~III.II,,1 ,I IIJi1,

Finding 1:

Salaries:

a. Questioned cost of S 25,720

III~I. II

This amount represents one month's salaries paid to STC employees in excess of theapproved budget. STC obtains a yearly approval form USAIDlEgypt stating theexact salary for each position. The extra month's salaries paid to STC employees.and charged to USAIDlEgypt are considered to be unaUowable.

b. Questioned cost of S 24,034

This amount represents the employee's share of social security insurance. Thisamount should be deducted from the employees salaries rather than charged toUSAIDlEgypt. Therefore, this amount is considered to be unallowable.

STC's Response:

a. According to Article 4 (Contractor's Compensation), item 4.2 of the Host CountryPersonal Services Contract of the Executive Director and STC Managers, thecompensation includes a one-month bonus equivalent to one month salary.

The Project Officer has also approved the readjustment of the Executive Director,Prof. Dr. Ahmad Samieh EI Nockrashy's salary which includes a basic salary plusone month bonus, in his letter dated May 3, 1990 (attached are both his letter aswell as the request of Prof. Dr. Ahmad Samieh EI Nockrashy dated March 15,1990).

All STC staff contracts also include the same provision of being compensated on thebasis of a basic salary and a one-month bonus.

The Project Officer approval on the monthly bonus for STC employees has alsobeen obtained (copy of the approval attached).

b. The employee's share of social security insurance is deducted from the employeessalaries each month and has never been charged to- USAIDfEgypt. Therefore, thisfinding is not applicable to STC at all.

As to the employer's share of social security and in response to FAST findings, theemployer's share of social security has been charged to the Government of Egypt(GOE) contribution and deducted from USAlDfEgypt PIL 4 expenditure.

Attached is a sample salary sheet for one of the employees. As can be seen, theemployee share of social security is deducted from the salary released to theemployee. As for the employer share which used to be charged to USAIDlEgypt,all the amounts deducted from USAIDlEgypt were summed up and paid from GOEcontribution to the STC account at the Nationa Investment Bank Dad hence deductedfrom the Secretariat's expenses.

I 1111111111"I1UJ,1:

Finding 2:

Consultants:

a. Questioned cost of S 491

1111111._.11

This amount represents payments to 4 consultants for attending the laser program.Although the Steering Committee approval indicates the names of the consultantsattending this program, the names of these 4 consultants were not included in thisapprovaL Therefore, this amount is considered to be unallowable.

b. Questioned cost of S 45

The amount billed to USAID/Egypt was $ 130. The actual amount paid to theconsultant was $ 85. The difference is S 45, which is considered to be unallowable.

STC's Response:

a. The STC Steering Committee decided on March 25, 1992 to carry out a backgroundstudy on Laser applications in the fields of Agriculture, Industry, Health andCommunications. The Minister of scientific research has nominated Egyptian expertsto carry out the study. In response to the nomination, the nominated consultantsfound it necessary t corporate 4 other Egyptian experts to carry out the work in thisfield. A letter from SIC's Executive- Director was therefore prepared toacknowledge the participation of these 4 Egyptian experts in the study. (copy of theletter is attached).

b. This questioned cost is acknowledged by STC.

I 111111111.11,,1 ~ ~.j, I

Finding 3:

Equipment and Supplies:

a. Questioned cost of S 4,470

IIIJlII._1IIII11

This amount represents the cost of printing a book about ASRT activities. AlthoughSTC is one component of ASRT, STC charged the full amount of the printing costto USAIDlEgypt. Additionally, we were unable to determine STC's share, whichshould have been charged to USAIDlEgypt. Therefore, this amount is considered tobe unreasonable.

STC's Response:

STC is one component of the ASRT and it was necessary to introduce the newcomponent to the Egyptian Production ,Services and Science and Technologyconununities. Therefore, it was decided to publish this book to introduce STC withinthe framework of the ASRT umbrella; the book had been prepared by STC, whereSTC is described within the framework of the ASRT. An approval from the projectofficer for the payment for the printing of this book by STC has been obtained(copy of approval is attached).

i 9in... ' i

I. , II. i ,I 1111~1lj,11,,1,,~ ,IIU

Finding 4:

Travel and Training:

a. Questioned cost of $ 51

This amount represents an amount in excess of USAIDfEgypt's per dicm rates forlocal travel. No USAIDlEgypt approval is available for this excessive amount.Therefore, this amount is considered to be unallowable.

b. Questioned cost of $ 20

This amount represents taxes paid to the Ramada Hotel. Article 46, Attaclmlcnt Bof OMB Circular No. A-122 states that taxes are not allowable. 111erefore, thisamount is considered unallowable.

STC's Response:

a. The questioned cost is acknowledged by STC.

b. The questioned cost is acknowledged by STC.

...... ...._._.-_._---

I II ,I 111111111,11..1. ~ III iI

Finding 5:

Special Studies:


11111II11_-_11

This amount represents the cost for 3 employees to attend the Sixth ArabInternational Aluminium Conference. This amount is supported only by check.Voucher and cash receipts are not available. Therefore, this amount is consideredto be Wlsupported.

b. Questioned cost of $161

This amount represents accommodation fees for a journalist to attend a workshop.However, this journalist is not a participant in the project. Therefore, tIus amountis considered to be unallowable.

c. Questioned cost of $ 73

This amount represents taxes paid to the Ramada Hotel. Article 46, Attachment Bof OMB Circular No.A-122 states that taxes are not allowable. Therefore, thisamount is considered unallowable.

d. Questioned cost of $ 15

This amount represents an amount in excess of USAID/Egypt's per diem rates forlocal travel. There was no approval given by USAID/Egypt for this excessiveamount. Therefore, this amount is considered to by unallowable.

STC's Response:

a. STC is implementing two projects at the Aluminium Company of Egypt(EOYPTALUM). The achievements of these two projects were discussed during theSixth Arab International Alwninium Conference held in Cairo from 11-14 December1993. Therefore, STC's Executive Director nominated three STC employees for theattendance of this conference.

The conference registration fee was paid by check no. 2440790 dated 21/1111993and was cashed out by the conference organization on 20/12/J993 from STe'saccount at the National Investment Bank. Attached please find the bankreconciliation for this amount.

....•.-._-._---

I. II, ,I 111:11111,11,,1 ~ ,Ill II: 1111111--_11

b. One of SIC's objectives is to disseminate information on its activities andachievements in the different areas it works in. The participation of the media andpublic relations people is of great importance in disseminating STC's achievementsin these areas. Attached please find the Project Officer approval on the participationof the media and public relations people in STC's seminars.

c. This questioned cost is acknowledged by STC.

d. This questioned cost is acknowledged by STC.

--_ .

I II ,I 1::11111111.,1 ~ ill I,

Finding 6:

Contingency and Misc.:

a. Questioned cost of $ 3,128

This amount represents the cost of printing a book about ASRT activities. AlthoughSTC is one component of ASRT, STC charged the full amount of the printing costto USAIDlEgypt. Additionally, we were unable to determine STC's share, whichshould have been charged to USAIDlEgypt. Therefore, this amount is considered tobe unreasonable.

STC's Response:

a. As one of the components of the ASRT, it was necessary to describe theachievements of STC within the framework if the ASRT to be presented during theFirst Scientific Research Day, which was attended by H.E. President HosniMubarak, H.E. the Prime Minister and Ministers of several other Ministries. Thebook was prepared by STC and therefore, it was paid for by STC. The ProjectOfficer has approved on paying for the printing of this book by STC (copy ofapproval is attached).

! IIII!IIIIIIIII! III!

Project Implementation Letter No.7:

, ....,11·····.,..,·,,',"

I IIII11111111111 1111

Finding I:

Travel and Consultants:


.11.:111..... - ....,·,

This amount represents an amount in excess of USAID/Egypt's rates for consultants.

There was no approval given by USAIDlEgypt for this excessive amount. Therefore,

this amount is considered to be unallowable.

b. Questioned cost of $ 2,104 ',-

This amount represents per diem and lodging costs for 4 investigators during their

trip to Singapore. Their stay in Singapore was not stated in the PI approval.

Therefore, we consider this amount to be unallowable.

c. Questioned costs of S 360

This amount represents taxes on air tickets. Article 46, Attachment B of OMB

Circular No.A-122 states that taxes are not allowable. Therefore, tIlis an10unt is

considered to be unallowable.

d. Questioned costs of $ 270

This amount represents lodging expenses for an investigator during his trip to the

USA. No supporting documents were available to suppor~ this expense. Therefore,

we consider this amount to be unsupported.

STC's Response:

a. The actual questioned cost was found to be only $ 400. The difference between the

$ 667 questioned cost presented by the Hazem Hassan Audit team and the $ 400

actual questioned cost stems from the fact that the audit team calculated the

maximum per diem rate as $ 274 Iday while in fact it is $ 280/day as stated in PIL

7. This will lead to a total excess of $ $ 174 (29 nights" $ 6). The remaining $ 93

in excess stems from the fact that tl1is amount has been deducted by STC from the

per diem rate released to the Consultant because of lack of cash at the time. Hence

the total amount of questioned cost is only $ 400.

However, STC has obtained the approval of the Project Gfficer on increasing the

daily rate payable to American consultants to be equivalent to the maximum payable

daily rate of a Foreign Service Officer Class FS-I according to Contractor Notices

issued by USAID, Cairo. (Attached is a copy of this approval).

An approval was also obtained form the Project Officer on a daily rate of $ 297 for

this consultant, Dr. Victor Apps (Attached is a copy of this approval).

,----_., .

111111111111,,11111,1

b. Within the framework of the observation/consultation: trip carried out by 4 membersof the research team of CIA 47, it was necessary to stay one night in Singapore onthe trip to and from their destination because of the plane times. The PrincipalInvestigator has sent a letter to STC approving their stay in Singapore andrequesting STC's approval. (Attached is a copy of the PI letter).

c. This questioned cost is acknowledged by STC.

d. A certificate was provided by the traveler stating the circumstances regarding thestolen supporting documents. The project director approved the amoWlts stated inthe traveler's claim taking into consideration its reasonableness and allocability incomparison to similar costs incurred by other travelers for the same destination,which has been accepted by FAST according to their follow-up report No. 2 datedDecember 11, 1995 to their report No. 95-07 (copy is attached).

I 1111111111111.11111III.JlII...__,11

Internal Control Structure:

... II••_a_ Ii .......···_·.. '·,.··T

Finding No.1:

I 11.1 111;1111111 I.~WIIUIIII._,__, 11

During our audit, we noted that evidence of approval of ccrtllin bank reconciliations waslacking.

Proper authorization of bank reconciliations is a necessary element of their internal controlstructure.

STC's management asserted that the review was performed. However, this review was notdocumented.

r

Lack of written approval will create future confusion as to whether reconciliations wereactually approved.

We recommend that, all bank reconciliations be approved, in writing, by the appropriatestaff member.

STC's response:

All bank reconciliations are prepared by the appropriate accountant assigned this task andwho is also in charge of registering everything in the accounting books.

All bank reconciliations are then revised and approved by SIC's Financial Manager.

All bank reconciliations are kc;pt in a specific file at STC and are available.

Finding No.2:

,I II, ,I 11111111,11,,11111:I,11111.1 .11

A fund reconciliation between the fund balance and the bank balance, as per books, wasnot prepared.

A sound internal control system requires that fund reconciliations be prepared in order toinsure that cash disbursements and revenues received from USAJDlEgypt have beenrecorded.

STC's management believes that bank reconciliations are adequate to control all cashdisbursements and cash receipts.

The lack of fund reconciliations may impair the fair presentation of the fund balance as perthe fund accountability statement.

We recommend that STC's management prepare fund reconciliations on a timely basis.

STC's response:

A fund reconciliation between the fund balance and the bank balance, as per books, wasprepared and revised for PIL 7. +A fund record between the fund balance and the bank balance is being prepared at presentfor PIL 4 which states the number and amount of each claim and the check with which themoney was released from USAIDlEgypt which enables the preparation of the requiredreconciliation at any specific time taking into consideration the balance for Egyptian Poundsat the National Investment Bank and the total cash on hand for subprojects at the same date.(Attached please find a copy of this fund reconciliation book).

Finding 3:

I II I IIIIIIIIIII:I.UI:I 111.~11_._ II

During our audit we noted that STC does not maintain a detailed accounting manual.

A detailed accounting manual should be prepared in order to determine what should becharged on each line item.

STC's management asserts that they rely upon budget line items in detennining costscharged on each line item.

The lack of such an accounting manual led to he misclassification of certain costs amongline items. Although these misclassifications have no financial effect, they impair thepresentation of the fund accountability statements.

We recommend that STC develop an accounting manual detailing the types of costs to beincluded in each budget line item.

STC's response:

STC is taking the necessary actions to prepare a detailed accounting manual.

I 11,1111:111111,1 :111111

A~PINDIX IIAUDITOR'S COMMBNTS

""Je"'!'''',"!'''''

KPMG Hazem Hassan

II ,I 111;11111.11,,1 J liD III~II'_._ II

PIL No,4

Finding No.1 a

AUDITOR'S COMMENTS

Page 1 of 3

Based on documents and clarifications provided to us,subsequent to the issuance of the draft report, this findinghas been removed. ~

Finding No.1 b


Finding No.2 a


/ Finding No.2 b

STC's management agree with this finding. Therefore, thisfinding will remain the same.

Finding No.3 a


/ Finding No.4 a


Finding No.4 b

STe's management agree with this finding. Therefore, thisfinding will remain the same.

Finding No.5 a~


1,11,1 UIIIIIII,I I IIJ,I,

r--~,-

KPMG Hazem Hassan

Finding No.5 b

Illilllll ll

Page 2 of 3


/Finding No.5 c


I Finding No.5 d


Finding No.6 a


PlL No.7

Finding No.1 a


Finding No.2 b


Finding No.2 c


Finding No.2 d

STC I S management did not provide us with the supportingdocuments of this amount. Therefore, this finding willremain the same.

\r\'{

I 11,,11111111111,,11111;I

~.--.~""'"

KPMG Hazem Hassan

Internal Control Structure

Finding No. 1

III~I._."'II

Page 3 of 3


lFinding No. 2

Fund reconciliation for PIL No. 4 and the LE portion of PILNo.7 was not prepared until the date we received STC 'smanagement response. Therefore, this finding will remain thesame.

/ Finding No. 3

The detailed accounting manual was not prepared until thedate we received STC's management response. Therefore, thisfinding will remain the same.

,Compliange with Regulations and LawS

STC I S management response did not address our finding oncompliance with regulations and laws. Therefore, ourposition will remain the same.

I 11,1 lllililll.ll,,1 J,lIU IILlIIII....__ 11

APPINDIX IIIMISSION'S COKKBHTS

1 II ,I IIII~III,II, ,I~, ,til: I,IIUIIIII " I I

Appendix CPage 1 of •

UNITED STATES AGENCY for INTERNATIONAL DEVELOPMENT

tt**x'ti...•..'CAIRO, EGYPT

May 7, 1996

M...EMORANDUM

TO:

FROM:

Lou Mundy, RIG/A/C

Shirley Hunter, OD/PM/FA

RECCE~\fED

o8 MAY 1996

---------------

SUBJECT: Financial Audit of the Science and TechnologyCooperation, Expenditures Incurred Under the ScientificResearch and Technology Cooperation Project(USAID/Egypt Project No. 263-0140).Draft Report dated March 27, 1996.

Following is the Mission's response to the draft report,including the actions taken by the Mission to resolve and closeRecommendation No. 1 under the SUbject audit:

Recommendation No.1:

We recommend that USAID/Eqypt resolve questioned costs of $834(ineligible costs of $564 and unsupported costs of $270) detailedon pages 14 through 18 of the KPMG Hazem Hassan audit report, andrecover from the Science and Technoloqy cooperation the amountsdetermined to be unallowable.

Mission Response:

Based on the Mission's review, of the $834 questioned costs,$321 is cQnsidered allowable, and $513 is sustained. The amountsustained was refunded in the attached Voucher Nos. 92 dated4/6/96, and 34 dated 5/6/96. Attached is a summary table showingthe amounts allowed and amounts sustained. Accordingly, Missionrequests closure of this recommendation.

Following are the details of the Mission's determinationregarding the questioned costs:

'06 Kasr EI Aini StreetGarden CityCairo, Egypt /1)

7

IXL No. ..

1 11111:1111111 II~II!IIIJlII" ,"

Appendix CPage 2 of •

L. Consultants:

b. The ineligible amount of $45 (LE 150) page 14

* This amount represents the difference between the amount

paid to a consultant and amount billed.

* STC has accepted this finding and has deducted the amount

from voucher No. 92 for the mont~ of April, 1996 (copy

attached) .

Therefore, Mission requests closure of this part of the

recommendation.

4. Travel and Training:

a. The ineligible amount of $51 (LE 173) page 15

* This amount represents an amount in excess of the

USAlD/Egypt's per diem rates for local travel.

* STC stated that this amount, although recorded in the

ledger, was not billed to USAlD. STC submitted a copy of

the ledger as well as the billing for the same month (copies

attached). FM/FA review has confirmed that the amount was

never billed to USAlD. Therefore, Mission believes that

this amount is considered allowed. Attached is a copy of

the ledger, the settlement, as well as the January 1993

billing.


recommendation.

b. The ineligible amount of $20 (LE 67) - page 15

* This amount represents taxes paid to a hotel.

* STC has accepted this finding and has deducted the amount

from voucher No. 92 for the month of April, 1996 (copy

attached) •


recommendation.

5. Special Studies:

c. The ineligible amount of $73 (LE 246)- page 16

I, 1I",IIIIIIIIILII"I,II,IIJII

- 3 -

11111I11 .11

Appendix CPage 3 of .(

• This amount represents taxes paid to a hotel.

• STC has accepted this finding and has deducted the amountfrom voucher No. ~92 for the month of April, 1996 (copyattached) •

Therefore, Mission requests closure of this part of therecommendation.

~. The ineligible amount of $15 (LE 50)- page 16

-.... • This amount represents amount in excess of USAID/Egypt perdiem rates.

• STC has accepted this finding and has deducted the amountfrom voucher No. 92 for the month of April, 1996 (copyattached) .


PIL No.7

1.

c.

•;......... •

Travel and Consultants:

The ineligible amount of $360 .- page 18

This amount represents taxes paid on air tickets.

STC has deducted this amount from voucher No. 34 for themonth of April, 1996 (copy attached).


d. The unsupported amount of $270 - page 18

• This amount represents unsupported lodging expenses for aninvestigator during his trip to the U.S.A.

• STC has provided the following documents to support thisexpense, in lieu of the lodging receipts:

a.

b.

c.

A certificate by the traveller stating thecircumstances regarding the stolen documents,A copy of the air ticket proving that the travel tookplaceThe Project Director's approval of these expenses,taking into consideration its reasonableness and

I II I 11111111.111 .11111

- 4 -

IlIUlII.....__·"

Appendix CPage 4 of III

allocability in comparison to similar costs incurred by

other travellers for the same destination.

Based on the above documents, Kission believes that the costs

were actually incurred, are reasonable, and have served the

project purpose. Therefore, this amount is considered supported

and Mission requests closure of this finding.

Attach. Als

---.....··-····· .. ···r

financial audit ofthe science and technology cooperation

Documents