Report Contents
What Was Audited
The National Endowment for Democracy (NED) is a non-profit organization with the stated goal of promoting democracy abroad. Although Congress recognizes and authorizes NED’s funding, NED is not an establishment of the U.S. Government. Each year, Congress authorizes funds that the Department of State (Department) distributes to NED through an annual grant agreement. In addition, the Department awards discretionary grants to NED. NED received $148 million in grant awards from the Department in FY 2015 and $185 million in FY 2016. AUD-FM-18-24.
Acting on behalf of the Office of Inspector General (OIG), Kearney & Company, P.C. (Kearney), an independent public accounting firm, conducted this audit to determine whether NED’s financial transactions and operations, as well as those of its four core institutes, complied with the National Endowment for Democracy Act (NED Act), applicable Federal regulations, and grant agreements for FYs 2015 and 2016.
What OIG Recommends
OIG made four recommendations to the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management (AQM), to improve NED’s operations or to address issues related to questioned costs. On the basis of AQM’s response to a draft of this report, OIG considers all four recommendations resolved, pending further action. A synopsis of AQM’s response to the recommendations and OIG’s reply follow each recommendation in the Audit Results section of this report. AQM’s and NED’s comments are reprinted in Appendices B and C, respectively.
What Was Found
Kearney found that NED’s financial transactions and operations generally complied with the NED Act, Federal regulations, and grant agreements. For example, Kearney tested 49 of NED’s expenditures and found that NED complied with the key requirements that were tested. Selected transactions generally complied with key requirements because NED had an effective system of controls.
Kearney also found that NED generally had controls in place to ensure that its discretionary grantees complied with key requirements. For example, NED searched Federal databases to identify organizations that had been blocked from receiving Federal funds and performed required risk assessments on those organizations. However, NED did not always comply with its internal policy on reviewing invoices or daily transaction ledgers for discretionary grantees. In general, NED had implemented a strong internal control environment for the oversight of the discretionary grantees, but its policies should be updated to require NED officials to reassess the level of monitoring required when additional funds are added to an existing award.
In addition, Kearney found that expenditures made by NED’s discretionary grantees complied with Federal regulations, grant agreements, and NED’s internal guidance. For the 25 expenditures tested, Kearney found that discretionary grantees complied with the key requirements that were tested. This occurred because NED had developed and implemented a step-by-step guide for its discretionary grantees.
Kearney also found that, on the whole, expenditures made by NED’s four core institutes complied with the NED Act, Federal regulations, and grant agreements. Specifically, Kearney tested 72 expenditures from the core institutes and found only 1 instance where the expenditure did not comply with requirements. This occurred because each core institute had generally implemented an effective system of internal controls over financial reporting and document retention.
Report Terms
Report Recommendations
OIG recommends that the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management (AQM), (a) require the National Endowment for Democracy (NED) to follow up with one of its discretionary grantees to obtain the required support regarding a missing 2016 quarter one invoice, (b) require NED to determine the disposition of the $52,000 provided to the grantee and report its conclusion to AQM, and (c) recover any costs determined to be unsupported.
OIG recommends that the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management, instruct the National Endowment for Democracy to review its “Compliance Policies and Procedures” to identify outdated procedures and update the policy document, as appropriate, as well as verify that the policies have been updated. At a minimum, the sections on the Risk Matrix and Invoice Verification should be updated.
OIG recommends that the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management, (a) determine whether the questioned costs of $718 identified related to August 2015 rent payments for the Zimbabwe Field Office under Solidarity Center’s FO-544-Zimbabwe NED 15 Project were allowable and (b) recover any costs determined to be unallowable.
OIG recommends that the Bureau of Administration, Office of Logistics Management, Office of Acquisitions Management, (a) instruct the National Endowment for Democracy (NED) to develop and implement procedures requiring core institutes to report questioned costs identified subsequent to expensing by the core institute to NED for review and action and (b) verify that the procedures were implemented.