REPORT OF AUDIT OF INDUSTRY DEVELOPMENT

PROJ PROMOTES DEVELOPMENT OF PRIVATE INDUSTRY, IN PARTICULAR FOREST INDUSTRY DVLP AND MECHANIZED FARMING ACTIVITIES, AND ASSISTS THE DEVELOPMENT BANK OF LAOS(DBL) DEVELOP THE CAPABILITY TO SERVE AS INTERMEDIARY FOR THE FLOW OF LOAN CAPITAL TO PRIVATE INDUSTRY AND AGRICULTURE. AUDITORS REVIEWED USAID AND DBL DOCUMENTS, AND LAO FOREST SERVICE PROPERTY RECORDS, AND ALSO CONDUCTED PHYSICAL INSPECTIONS TO VERIFY COMPLIANCE WITH PROJ AGREEMENT TERMS AND AID REGULATIONS. AUDITORS DETERMINED THAT THE LAO DIRECTORATE OF WATER AND FORESTRY(DWF) HAD NOT MAINTAINED ADEQUATE RECORDS FOR THE CONTROL OF NON-EXPENDABLE PROPERTY PURCHASED. ONLY PROPERTY ACTUALLY RECEIVED AT THE DWF"S INVENTORY SECTION WAS RECORDED,AND IN THIS CASE NOT ALL PERTINENT AND REQUIRED INFORMATION WAS INCLUDED. AUDITORS RECOMMEND THAT USAID/LAOS REQUEST DWF TO (A)TAKE A PHYSICAL INVENTORY AND RECORD ALL OF ITS USAID-FINANCED NON-EXPENDABLE PROPERTY,AND (B)ESTABLISH PRACTICES AND PROCEDURES THAT WILL ENSURE THAT ALL NON-EXPENDABLE PROPERTY IS CONTROLLED AND RECORDED IN THE MANNER PRESCRIBED BY AID REGULATIONS. AUDIT REVEALED THAT A TOTAL OF KIP 4,841,988 WAS BEING HELD BY DBL IN A RESERVE FOR AMORTIZATION ACCOUNT. THESE FUNDS REPRESENTED THE ACCUMULATION OF USAID"S SHARE OF PAID BACK LOAN PRINCIPAL,INTEREST,AND GUARANTEE COMMISSIONS FROM THE DBL"S INDUSTRY LOAN FUND THAT WITH USAID-OWNDED LOCAL CURRENCY SUPPORT IS MAKING MEDIUM TERM LOANS TO POTENTIAL ENTREPRENEURS. AUDITOR"S DRAFT REPORT RECOMMENDED IMMEDIATE TRANSFER OF THE DBL"S ACCUMULATED USAID ACCOUNT TO USAID AND SUBSEQUENT FORWARDING OF USAID"S SHARES OF PAID BACK MONIES UPON RECEIPT. DBL HAS ALREADY COMPLIED WITH THIS PRELIMINARY RECOMMENDATION.