Audit of compliance with indirect cost rates by AID contractors and grantees

Audit is based on review of vouchers and other documents from 23 contractors/grantees whose overhead rates had been audited and recommended for change during the period FY85-86. A.I.D. was generally complying with the implementation of indirect rates that had been recommended during audit reviews. NICRA"s were issued in all cases sampled, and the rate agreed upon was the same as the audit recommendation in 96% of the cases. In most, but not all cases, the contractor was applying the new rates, although there was an understandable tendency to apply upward adjustments more promptly and delay downward adjustments, sometimes as long as six or seven months. However, A.I.D. did not have an effective method of monitoring compliance with indirect cost rates, which allowed incorrect rates to be billed in 6 of the 23 cases, and has created a potential for much greater abuse. Neither the contracting officers who negotiate the rates, the project officers who administratively approve the contractor"s billings, nor the voucher examiners in the Office of Financial Management (FM) who certify the vouchers for payment consistently test to see if the latest rates are being applied. In fact, 35% of the vouchers examined provided no evidence of what rate was being charged. It is recommended that FM require minimum standards for voucher documentation of overhead charges, and that the Office of Procurement communicate these criteria to the contractors along with the NICRA"s. (Author abstract, modified)