Use of and accountability for local currency revolving funds generated by USAID/Honduras" economic recovery program : memorandum audit report no. 1-522-85-5

projects in Honduras. Audit report covers the period 9/82-9/84 and is based on document review, a site visit, and interviews with USAID/H, Honduran, and contractor personnel. The report focuses on 3 revolving funds - for the Rural Primary Education (RPE), Rural Trails and Access Roads (RTAR), and the Small Farmers Coffee Improvement (SFCI) projects. Although the revolving funds have facilitated the implementation of A.I.D. projects, in general they are not functioning properly, due to inadequate management, monitoring, and reporting. Lack of well-defined operating procedures has been a major problem. To date, the only guidance available has been in project implementation letters, which, however, do not provide specific instructions for managing the funds. As a result, the RPE fund was nearly depleted because USAID/H reimbursements were deposited in the wrong account; this situation was discovered before serious problems occurred, but potentially could have delayed implementation of a new private sector initiative. During this audit, procedures for replenishing the fund to meet immediate needs were agreed upon by USAID/H and the Ministry of Finance and Public Credit (MFPC). The initial reimbursement for the RTAR fund was also deposited to the wrong account, again due to lack of specific operating guidelines. Disbursements from the funds have not always been timely; delays have ranged from 14 days to 7 months. These delays have not seriously affected project operations, but faster disbursements would enable contractors to mobilize equipment and workers sooner. Finally, because monitoring and reporting responsibilities for the funds have not been defined, USAID/H was unaware of the above problems. The USAID/H Controller"s Office has now indicated that it will monitor fund activities and balances monthly. It is recommended that USAID/H, the MFPC, and appropriate implementing agencies develop procedures specifying how the funds will be used, managed, replenished, and liquidated, and designate responsibility for monitoring and reporting on fund activities.