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Report on Audit of the African Development Foundation’s Financial Statements for Fiscal Years 2006

De
47 pages
OFFICE OF INSPECTOR GENERAL Audit of the African Development Foundation’s Financial Statements for Fiscal Years 2006 and 2005 AUDIT REPORT NO. 0-ADF-07-002-C November 15, 2006 WASHINGTON, DC Office of Inspector General November 15, 2006 MEMORANDUM TO: ADF President, Rodney MacAlister FROM: AIG/A, Joseph Farinella /s/ SUBJECT: Report on Audit of the African Development Foundation’s Financial Statements for Fiscal Years 2006 and 2005 (0-ADF-06-002-C) Enclosed is the final report on the subject audit. We contracted with the independent certified public accounting firm of Leonard G. Birnbaum & Company, LLP (LGB) to audit the financial statements of the African Development Foundation as of September 30, 2006 and 2005 and for the years then ended. The contract required that the audit be performed in accordance with generally accepted government auditing standards; generally accepted auditing standards; Office of Management and Budget (OMB) Bulletin 06-03, Audit Requirements for Federal Financial Statements; and the Government Accountability Office/President’s Council on Integrity and Efficiency Financial Audit Manual. In its audit of the African Development Foundation (ADF), LGB found that; • the financial statements were fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles, • ADF had effective internal control over financial ...
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 OFFICE OF INSPECTOR GENERAL    Audit of the African Development Foundation’s Financial Statements for Fiscal Years 2006 and 2005  AUDIT REPORT NO. 0-ADF-07-002-C November 15, 2006    
      WASHINGTON, DC
 
  Office of Inspector General  November 15, 2006  MEMORANDUM  TO:ADF President, Rodney MacAlister  FROM:AIG/A, Joseph Farinella /s/  SUBJECT:Report on Audit of the African Development Foundation’s Financial Statements for Fiscal Years 2006 and 2005 (0-ADF-06-002-C)  Enclosed is the final report on the subject audit. We contracted with the independent certified public accounting firm of Leonard G. Birnbaum & Company, LLP (LGB) to audit the financial statements of the African Development Foundation as of September 30, 2006 and 2005 and for the years then ended. The contract required that the audit be performed in accordance with generally accepted government auditing standards; generally accepted auditing standards; Office of Management and Budget (OMB) Bulletin 06-03,Audit Requirements for Federal Financial Statements; and the Government Accountability Office/President’s Council on Integrity and Efficiency Financial Audit Manual.  In its audit of the African Development Foundation (ADF), LGB found that;  • the financial statements were fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles,  • ADF had effective internal control over financial reporting (including safeguarding assets) and compliance with laws and regulations,  • ADF’s financial management systems substantially complied with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA), and  • no reportable noncompliance with laws and regulations it tested.   In connection with the audit contract, we reviewed LGB’s report and related documentation. Our review, as differentiated from an audit in accordance with U.S. generally accepted government auditing standards, was not intended to enable us to express, and we do not express, opinions on ADF’s financial statements or internal control or on whether ADF’s financial management systems substantially complied with FFMIA; or conclusions on compliance with laws and regulations. LGB is responsible for the attached auditor's report dated November 3, 2006 and the conclusions expressed in it. However, our review disclosed no instances where LGB did not comply, in all material respects, with applicable standards.   U.S. Agency for International Development 1300 Pennsylvania Avenue, NW Washington, DC 20523 www.usaid.gov
 
 
 
   
The report does not contain recommendations. ADF comments to the auditor’s report are included in Appendix I.  The OIG appreciates the cooperation and courtesies extended to our staff and to the staff of LGB during the audit. If you have questions concerning this report, please contact Andrew Katsaros at (202) 712-4902.
 
   
CONTENTS  Message from the President.......................................................................................... 1  Management s Discussion and Analysis...................................................................... 4  Independent Auditor s Reports................................................................................... 26  Financial Statements  Balance Sheets ......................................................................................................... 31  Statements of Net Cost ............................................................................................. 32  Statements of Changes in Net Position .................................................................... 33  Statements of Budgetary Resources ........................................................................ 34  Statements of Financing ........................................................................................... 35  Notes to the Financial Statements ............................................................................ 36  Appendix I - Management Comments......................................................................... 41
 
           
 
                      
AFRICAN DEVELOPMENT FOUNDATION  PERFORMANCE AND ACCOUNTABILITY REPORT  FISCAL YEAR 2006   
Leonard G. Birnbaum and Company, LLP 6285 Franconia Road Alexandria, VA 22310 (703) 922-7622
 
  
   AFRICAN DEVELOPMENT FOUNDATION MESSAGE FROM THE PRESIDENT  It gives me great pleasure to report that FY 2006 has been a very successful year for the African Development Foundation (ADF). Since beginning my tenure as the President of ADF, in February of this year, I have become increasingly impressed with ADF’s track record of delivering on its mandate to help the poorest of the poor in Africa. ADF is an agency that knows how to accomplish its mission.  Even the most efficient agency can make improvements, and I saw some areas that I wanted to address as soon as I arrived. One of the most important initiatives I put into place as soon as I took office was an updated, revamped safety and security policy that applies to our field operations as much as to our headquarters. The health and safety risks associate with ADF’s line of business cannot be overstated. As the agency head, I believe it is my duty to ensure to the extent possible that everyone in the extensive ADF family enjoy and safe and healthy work environment. The new policy is innovative and progressive, bringing best practices to our clients and customers as well as our staff.  Another important initiative undertaken this fiscal year is the creation of the Africa Regional Office (ARO) in Accra, Ghana. Headed by a seasoned ADF senior manager, the ARO, when fully staffed, will provide essential on-the-ground assistance to field staff and grantees. With so much of ADF’s methodology predicated on working with grantees all along the way, having a presence on the continent is absolutely essential.  ADF fosters hope, growth and goodwill in Africa. Its programs advance two major U.S. Government (USG) objectives: ¾ stimulating Africa’s economic growth, particularly in terms of building on the success of the Africa Growth and Opportunity Act (AGOA); and ¾ consolidating progress in fragile states.  Furthermore, ADF’s major country programs align with those African countries that the Administration has identified as USG priorities.  ¾ In Nigeria, Ghana, Zambia, Tanzania and Uganda, ADF concentrates its investment to develop small and medium-sized, African-owned enterprises and to help small farmers diversify production into high value cash crops for the global market.  
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¾ Liberia and Rwanda, ADF’s programs foster hope and promote growth needed forIn peace and stability.  ¾ In Guinea, Northern Nigeria, Mali, Niger, Senegal, ADF’s programs help advance the Administration’s efforts to foster goodwill with predominately Muslim countries and alleviate poverty as a breeding ground for radical Islamic fundamentalism.  ADF has proven its effectiveness and demonstrated its uniqueness and impact. We had some noteworthy accomplishments during this past year.  ¾ We are nimble and have shown how we can quickly respond to USG priorities. Within 13 days of being invited by the new Head of State of Liberia to consider opening a program there, and with the encouragement of the President’s National Security Advisor for Africa, ADF was on-the-ground planning for a new country program. In less than six months, we established in-country operations and have designed and funded eight projects to help rebuild the Liberian private sector and demonstrate the responsiveness of our government.  ¾ ADF was rated as fully “effective” by OMB inthe PART assessment, the highest rating available, which is received by only 11 percent of all USG agencies and only five percent of grant programs. Nonetheless, we are not “resting on our laurels”; ADF’s Board of Directors is committed to further strengthening our program performance and operations. Towards that end, ADF undertook a fundamental restructuring and set up its African Regional Office in Accra, Ghana, this year.  ¾ ADF continues to demonstrate that it can help small African producers take advantage of AGOA and access global markets with quality products. Under our new Buyer Linkages Program, women in both Ghana and Tanzania are producing baskets that will be featured in Target stores across the United States as part of their annual “Global Bazaar.” Similarly, we are negotiating with Cargill to buy organic cotton from smallholders supported by ADF in Zambia.  ¾ As a testimony to its effectiveness, ADF continues to expand its strategic partnerships with African governments and private companies, requiring matching contributions for all new country programs. No other relief or development agency can boast of such an approach being central to its business model. It not only maximizes the impact of USG resources, but it also provides ADF opportunities to influence African development priorities and to encourage greater corporate social responsibility. This year, ADF entered into two new partnerships, worth $2.0 million annually, with multinational corporations involved in extractive industries.  The African Development Foundation is an integral part of achieving U.S. priorities in Africa. ADF has produced significant results, with relatively small appropriations. The Foundation is being recognized – within the development community, in the Administration, and in Congress – as one of the most distinctive and effective foreign assistance programs we have. Moreover, it serves as a powerful example of both the compassion and the innovation of the American people.
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 I am pleased to submit the FY 2005 Performance and Accountability Report for the African Development Foundation (ADF). The financial statements and the performance results data are complete, reliable and in accordance with the Office of Management and Budget (OMB) requirements and in conformity with generally accepted accounting principles. ADF has appropriate management controls in place to ensure that all internal controls are operating in accordance with applicable policies and procedures and are effective in meeting the requirements imposed by the Federal Managers’ Financial Integrity Act (FMFIA) and the Federal Financial Management Improvement Act (FFMIA).  Signed:  /s/  Rodney J. MacAlister President  
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AFRICAN DEVELOPMENT FOUNDATION MANAGEMENT'S DISCUSSION AND ANALYSIS  About the African Development Foundation  Congress established the African Development Foundation (ADF) in 1980 as a U.S. Government corporation dedicated to promoting grassroots development in Africa. ADF provides grants to private enterprises and other non-governmental organizations in Africa. The usual maximum grant size is $250,000, but ADF can fund larger projects as rare exceptions, with the approval of the Board of Trustees and notification of Congress. The usual maximum grant duration is five years, but may extend to seven years in some circumstances. ADF  ƒ initiatives that are conceived, designed, andFinances sustainable poverty alleviating implemented by Africans and aimed at enlarging opportunities for community development;  ƒ participation of Africa’s poor in the development of their countries; andExpands the  ƒ sustainable African institutions that foster development at the grassroots level.Builds   The African Development Foundation mission is to “grow” small African businesses and empower local communities to take control of their own development – from the bottom-up. Its assistance enables informal enterprises to move into the formal economy, small businesses to grow into robust enterprises that can produce high quality products as substitutes for expensive imports and for regional and global markets, poor farmers to produce nontraditional high-value cash crops, and capture additional revenue through processing prior to export.  The agency’s program is highly complementary to other USG development assistance, but ADF’s model is unlike any other currently in the market.  ¾ ADF’s approach is rigorous and holistic; it works with the prospective clients to assess all aspects of its operations, diagnose constraints, identify growth opportunities, and then provides a comprehensive, integrated package of investment capital, technology, training, technical assistance and market support tailored to a specific enterprise or industry.  ¾ ADF uniquely blends the strongest aspects of private sector venture capital and donor philanthropy in its approach. Its small grants do not over-extend a growing business too soon.  ¾  GranteesADF initiated the concept of the “community reinvestment grant” or CRG. commit to reinvesting a portion of their profits to support community development projects. This required contribution to a local development trust provides a strong commercial orientation to ADF’s support, and it enables the grantee to establish “credit-worthiness” to subsequentlyaccess commercial credit.  
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¾ Working directly with the enterprise, rather than through government agencies or international nongovernmental organizations (NGOs), private voluntary organizations (PVOs) or consulting firms, means that 100 percent of the grant goes directly to the recipient.  As the international community rallies to help reduce poverty and promote broad-scale economic growth in Africa, it is recognized that all too little of external funding is actually getting to the grassroots. In contrast, the African Development Foundation can demonstrate tangible, measurable outcomes, which aredirectly ADFattributable to its support. grows sustainable, indigenous businesses that have an economic impact that far surpasses the original value of the grant.  The Foundation has made year-on-year improvements in virtually all key program performance indicators. As a testament to the Foundation’s sound strategic planning, effective performance management, and consistently strong results, the Office of Management and Budget rated the agency fully “effective,” after completing the comprehensive Program Assessment Reporting Tool (PART) in FY 2005. This is its highest rating and is a significant accomplishment, given that only 11 percent of federal agencies, and a mere 5 percent of grant-making programs, receive it. (ADF’s PART assessment for FY 2006 is not included here because the ratings process had not been completed at the time of printing.)  One aspect of ADF’s program structure that makes it significantly different from other development agencies is its strategic partnership program. Because of the Foundation’s high impact and unique approach, both African governments and large, socially responsible corporations are seeking to partner with ADF and contribute their own capital funds to the Foundation to match appropriated funding. The Foundation already has signed Memoranda of Understanding with a dozen entities to contribute a total of $13.5 million. ADF has received five additional partnership proposals, which it expects to conclude during FY 2007, totaling $5.0 million more. As a result of these strategic partnerships, ADF leverages a 1:1 match in funding for the virtually all of its projects. This is not “parallel funding;” these are outright contributions made to the U.S. Government. Thus, ADF effectively doubles appropriated dollars through these partnerships.  During FY 2006, the Foundation’s Board of Directors and management have undertaken several important steps to enable the agency to operate more efficiently: ¾ Created a new management structure for headquarters and is now instituting a carefully redesigned field structure, to strengthen all aspects of operations and to ensure that leadership and management are closer to our field operating units; ¾ Developed a new grant mechanism to support business start-ups and fledgling companies and a “step-up” approach for incrementally growing businesses; ¾ Formulated a new corporate strategy that provides a stronger, clearer program focus and reflects the Foundation’s unique purpose, mandate and approach; ¾ Devised a classification of countries to prioritize programming; and ¾ Revised almost all ADF policies and procedures to enhance efficiency and effectiveness.
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FY 2004 95,176 115,827
75.6%
FY 2005 108,341 114,597
At least 64.9%
Per ormance Hi hli hts  ADF’s performance results for FY 2006 will not be available until the end of November. Because ADF provides grants to small African entities that are often located in remote locations, the task of gathering and analyzing fiscal year end performance data cannot be achieved in time for publication in the PAR. A detailed discussion of the FY 2005 performance targets and results is located in the performance section, below.  Comparative information on performance results from FY 2001 through FY 2005 is provided below:  Performance Result Trends, Five-Year Trends (cumulative numbers for active projects)  Performance FY 2001 FY 2002 FY 2003 Indicator Enterprises47,049 86,180 80,946 assisted Owners and full- 36,457 96,854 112,802 time workers in assisted enterprises1 Women as a percent 56.8% 58.1% 48.2% of owners and workers in assisted enterprises2 Enterprises with 54,099 65,319 67,893 loans3 Cumulativer sveadl ue of Indicator not in use  $11.243 million $15.127 loans disbu million Proportion of loans 50.8% 6 for women 0.6% 61.8% 4 People receiving 66,126 Indicator Indicator business discontinued discontinued management or technical training5 Women as a percent 26.3% of people receiving business management or technical training5 Cumulative sales $17.457 revenues from active million enterprise projects6 Net income of $10.528 grantees during the million year6  1data were available from grantee records or surveys to support higher numbers,Unless actual the most conservative assumption was adopted -- that there was one owner/worker per enterprise assisted. The actual number for many projects is likely to be substantially higher than the reported number. 2In the absence of information on the gender of the owners and workers, the proportion of women beneficiaries was assumed to be zero. The actual proportion of women beneficiaries is
Indicator Indicator discontinued discontinued
$53.440 million $28.830 million  $14.611 $6. million mill3i69 on
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84,925 $17.250 million 73.2% Indicator discontinued
Indicator discontinued
Indicator discontinued $22.790 million Indicator discontinued Indicator discontinued
Indicator discontinued
$43.485 million $54.836 million $8.807 $4.598 million million