COUNTERPART FUNDS ALLOCATED TO RIO GRANDE DO SUL HIGHWAY MAINTENANCE PROJECT

THE AUDIT CONSISTED OF AN EXAMINATION OF ACCOUNTING & RELATED DOCUMENTS TO DETERMINE THE PROPRIETY OF EXPENDITURES MADE BY THE DEPARTAMENTO AUTONOMO DE ESTRADES DE RODAGEM DO RIO GRANDE DO SUL (DAER,THE STATE HIGHWAY DEPT) FROM THE PROJ"S COUNTERPART FUND. COUNTERPART AGREEMENT NO. FC-1971-010 WAS ENTERED INTO 11/8/71 TO ASSIST DAER IN PURCHASING HIGHWAY MAINTENANCE EQUIPMENT AND TO FINANCE THE CRUZERIO COSTS OF CONSULTING ENGINEERS. AS OF 1/31/74, CR$11,780,296 HAD BEEN RELEASED TO DAER. THE EXAMINATION ALSO DISCLOSED INELIGIBLE EXPENDITURES OF CR$920,600. THESE EXPENDITURES INCLUDED CR$915,852 FOR BRAZILIAN PORT UNLOADING CHARGES AND CR$4,748 PAID TO A US EQUIPMENT VENDOR TO EXPEDITE SHIPMENT. AUDITORS RECOMMEND THAT THE DAER DEPOSIT AN AMOUNT EQUAL TO THE INELIGIBLE EXPENDITURES IN A SPECIAL ESCROW ACCOUNT. THE EXAMINATION DID NOT INCLUDE AN EXAMINATION OF ONE CONTRACTOR"S OVERHEAD COSTS -- WHICH TOTALLED CR$746,611. AUDITORS RECOMMEND THAT DAER PERFORM AN AUDIT OF THE OVERHEAD RATES AND MAKE ANY REQUIRED ADJUSTMENTS TO THE COUNTERPART FUND.