AUDIT REPORT ON KATURBA HEALTH SOCIETY, SEVAGRAM, INDIA (GRANT AGREEMENT #AID-386-1743)

THIS FOURTH AND FINAL REVIEW COVERS THE PERIOD OCT 1, 1976 TO MAR 31, 1979, DURING WHICH $119,000 WAS REIMBURSED TO KHS (OF A PROJECT TOTAL OF $2.5 MILLION). AUDIT PROCEDURES INCLUDE REVIEWS OF RECORDS OF USAID/INDIA AND KHS, AND FIELD INSPECTIONS AT SEVEGRAM. DUE TO MATERIAL SHORTAGES, DESIGN MODIFICATIONS, AND A SLOW CONTRACTOR, PROJECT COMPLETION HAS BEEN DELAYED TEN TIMES FROM 1975. AS A RESULT, THERE WERE COST OVERRUNS, AND SEVERAL PLANNED BUILDINGS WERE NOT CONSTRUCTED (INCLUDING NURSE AND DOCTOR HOSTELS, LIBRARY, AND LAUNDRY). EXCEPT FOR THESE DELAYS, IMPLEMENTATION WAS SATISFACTORY. THE HOSPITAL COMPLEX, WHICH INCLUDES EIGHT MAJOR BUILDINGS, WAS COMPLETED AND EQUIPPED IN 1977 AND, EXCEPT FOR THE KITCHEN BLOCK, WAS IN OPERATION AT THE TIME OF THIS AUDIT. KHS ALSO REPORTS THAT NON-GRANT FUNDS ARE SUFFICIENT FOR OPERATIONAL EXPENSES, BUT NOT FOR CONSTRUCTION OF THE ADDITIONAL BUILDINGS. TWO ADMINISTRATIVE PROBLEMS BLOCK THE PROJECT"S COMPLETION. FIRST, SETTLEMENT AND PAYMENT OF THE CONTRACTOR"S INVOICES HAVE BEEN DELAYED SINCE 1977 BECAUSE THE KHS DISPUTES THE PAY RATES AND THE RESULTING CHARGES OF $15,878 FOR EXTRA ITEMS. EXAMINATION OF THE CONTRACT SUPPORTED THE KHS CLAIM. IT IS RECOMMENDED THAT THE USAID MISSION DIRECTOR ESTABLISH A TIMETABLE FOR RESOLUTION OF THE DISPUTE OR REQUIRE KHS TO PAY THE NON-DISPUTED PORTION AND SUBMIT A CLAIM FOR THE REMAINDER IF GRANT FUNDS ARE UNAVAILABLE. SECOND, EXPENDITURES (SUMMARIZED IN EXHIBIT B) TOTALLING $23,000 ARE NOT ALLOWABLE. SINCE KHS MAINTAINS THESE ARE RELATED TO CONTRACTORS ACTIVITIES, IT IS RECOMMENDED THAT THESE CHARGES BE OFFSET AGAINST KHS"S FINAL CLAIM FOR REIMBURSEMENT. A SUMMARY OF ALL PROJECT ALLOCATIONS, ACTIVITIES, AND EXPENDITURES IS INCLUDED AS EXHIBIT A.