Foreign Assistance:

African Development Foundation's Overhead Costs Can Be Reduced

NSIAD-95-79: Published: Jun 2, 1995. Publicly Released: Jun 2, 1995.

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Benjamin F. Nelson
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Pursuant to a congressional request, GAO reviewed the African Development Foundation's (ADF) administrative and financial management practices, focusing on whether ADF: (1) used program funds for administrative expenses; (2) presented reliable data in its budget submissions to Congress; and (3) complied with financial reporting requirements.

GAO found that in fiscal year 1994, ADF: (1) spent more of its budget for administrative expenses than similar agencies, because of higher salaries and its greater use of contractors to carry out ADF functions; (2) exceeded the amounts included in its budget, partly because its board of directors provided insufficient oversight of its activities; (3) was not bound to the amount it spent for administrative overhead, because its funds were appropriated as a lump sum and not earmarked for program or administrative use; (4) budgetary and cost data for program management and support were unreliable and based on unaudited financial statements and an accounting system that was not viable for audit; (5) and the Office of Management and Budget acknowledged the data problems and took steps to improve the quality of budget reporting; and (6) did not comply with financial reporting, internal controls assessment, and budget report reconciliation requirements, but it took steps to do so.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress significantly reduced the amount of ADF's fiscal year 1996 appropriation, but it did not impose a specific limitation on what ADF could spend for administration versus its grants and program costs.

    Matter: If Congress wishes to ensure that ADF funds intended for program purposes are not used for administrative overhead or program support costs, it may wish to impose a limitation on the amount that ADF spends for these costs through the annual appropriation process.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: ADF hired an experienced position classifier who conducted a review of ADF's position classifications and grade structure in September 1995. The review was useful to ADF in restructuring and reducing its staff, but its effectiveness was overshadowed by a reduction-in-force action in January 1996 driven by a budget cut that reduced ADF's authorized staffing level from 54 to 30.

    Recommendation: The President, ADF, with the board of directors' approval, should obtain an independent review of ADF position classifications and grade structure.

    Agency Affected: African Development Foundation

  2. Status: Closed - Implemented

    Comments: ADF's new president, in coordination with OMB guidance, has revised the manner that ADF reports budget and expenditure data to Congress and OMB, resulting in improved disclosure and accuracy. Specifically, explanations are provided whenever actual expenditures are at significant variance with budget data, so that the origins and reasons for the changes are clear.

    Recommendation: The President, ADF, with the board of directors' approval, should provide improved disclosure in budget and expenditure reporting, including explaining the reasons for any significant differences in actual results.

    Agency Affected: African Development Foundation

  3. Status: Closed - Implemented

    Comments: ADF is installing a new computerized accounting system and has hired the accounting firm of Coopers and Lybrand to assist it in ensuring that the system is designed to meet federal government internal control requirements and will facilitate the budget reconciliation reporting requirements of the Government Corporation Control Act. The system is installed and operational, but the Foundation has not yet prepared its first set of financial statements from data generated by this system. Nonetheless, ADF management concurs with GAO's recommendation and said that it will comply when the requisite financial statements are produced.

    Recommendation: The President, ADF, with the board of directors' approval, should annually conduct the management assessment of internal controls and reconciliation of budget reporting required by the Government Corporation Control Act.

    Agency Affected: African Development Foundation


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