oversight

SIGAR 21-36-FA

Published by the Office of the Special Inspector General for Afghanistan Reconstruction on 2021-06-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 SIGAR                                                       Special Inspector General for
                                                              Afghanistan Reconstruction




                                                                              SIGAR 21-36 Financial Audit




           USAID's Afghan Civic Engagement Program:
           Audit of Costs Incurred by Counterpart
           International Inc.



                In accordance with legal requirements, SIGAR has redacted certain Information deemed
                                  proprietary or otherwise sensitive from this report.




                                                                                                       JUNE

                                                                                               2021

SIGAR 21-36-FA/USAJO's ACEP
                                                             June 2021




SIGAR
                                                             USAIO's Afghan Civic Engagement Program: Audit of Costs Incurred by
                                                             Counterpart International Inc.


                                                            SIGAR 21-36-FA

Special Inspector General for                               WHAT SIGAR FOUND
Afghanistan Reconstruction
                                                            Davis Farr identif ied th ree significant deficiencies in Counterpart's interna l
WHAT THE AUDIT REVIEWED                                     controls, and t hree insta nces of noncompl iance with the terms of the
                                                            agreement For exam ple. the auditors found that Cou nterpart's fi nancial
on December 4 , 2013. the u_s_Agency for                    statement included seven contract ual transactions outside of t he audit
International Development (USAID) awarded a $70
                                                            period t hat were noncompliant with federa l regulations and Counterpart's
million cooperative agreemerit to Counterpart
                                                            proced ures. As resu lt, the auditors identified $65.744 in questioned costs _
International Inc_(Counterpart). to suppOrt the
                                                            The auditors also found t hat counterpart did not provide any documentation
Promoting Afghan Civic Engagement program ; the
                                                            showing t hat $585.313 in reported cost-shari ng contributions were spent on
name of the program was later changed to the
                                                            al lowable goods or services_
Afghan Civic Engagement program through a
1nodificati0n_Tile program' s objective was to promote      Beca use of the significant deficiencies in internal controls and insta nces of
Afghan civil society and media engagementto                 noncompliance. Davis Farr identif ied $630,418 in tota l questioned costs,
influence pu blic Policy, government accountability,        consisting of $564.67 4 unsupported costs-costs not stJ pported with
and polit ical reform. After 18 modifications, tile         adeq uate documentation or that do not have required prior approval-and
agreement's total funding increased to $79,120,000,         $65,744 ineligible costs-costs prohibited by the agreement and applicable
and the period of performance was extended from             laws and regulations_
December 3 . 2018, through February 15. 2020_The
original agreement also included a cost share                                                                                      Total
component requiring Counterpoint to provide                  Category                        Ineligible     Unsuppane~           Questioned
                                                                                                                                   Costs
$2,461,116 for the program: subsequent
                                                             Cont ractual                    $64,620                     $0         $64.620
modifications to the agreement decreased the cost
share to $2,389,495.                                         Indirect Costs                    $1,124                    $0           $ 1,124
                                                             cost Share                             $0          $564,674          $564.674
SIGAffs financial audit, performed by Davis Farr LLP
(Davis Farr) reviewed $13,270,330 in costs charged           Total COsts                     $65,744            $564,674          $630,418
to tile agreement and $731,781 in counterpart's             Davis Farr identified six prior audit reports that were relevant to Counterpart's
shared costs from October 1 , 2018, through February        agreement The reports did not have fi ndings t hat could have a material effect
15, 2020_The objectives of the audit were to                on the SPFS and other financial data that are sign ificant to t his audirs
(1) identify and report on material weaknesses or           Objectives.
significant deficiencies in Counterpart's internal
controls related to the agreement; (2) identify and         Davis Farr issued a modified opi nion on Counterpart's SPFS because of
report on instances of material noncompliance with          material quest ioned costs ident ified during t his audit _
the terms of the agreement and applicable laws and
regulations. including any potential fraud or abuse;
(3) determine and repQrt on whether Counterpart has
taken corrective action on prior findings and
recommendations; and (4) express an opinion on the
fair presentation of counterpart·s Special Purpose
Financial Statement (SPFS)_See Davis Farr's report
for the precise audit Objectives_                           WHAT SIGAR RECOMMENDS

In contracting with an independent audit firm and           Based on the results of the audit, SlGAR recommends that the respensi'ble
                                                            agreement officer at USAID=
drawing from the results of the audit, auditing
standards require SIGAR to review the work                       1.   Determine the allowability of and recover. as appropriate. $630.418
performed. Accordingly. SIGAR oversaw the aud it and                  in questioned costs identified in the report
reviewed its results_Our review disclosed no                     2.   AdVise Counterpart to address the rePort's three Internal control
instances wherein Davis Farr did not comply. in all                   findings.
material respects, w'ith u.s_ generally accepted                 3.   AdVise Counterpart to address the rer:>0rt's three noncompliance
government auditing standards_                                        findings_


           For more information, contact SIGAR Public Affairs at (70 3) 545-5974 or sigar.pentagon.ccr.mbx.public-affairs@mail.mil.
®                                     Office of the Special Inspector General
                SIGAR I for Afghanistan Reconstruction

June 8, 2021


The Honorable Samantha Power
Administrator, U.S. Agency for International Development

Dr. Tina Dooley-Jones
USAID Mission Director for Afghanistan


SIGAR contracted with by Davis Farr LLP (Davis Farr) to audit the costs incurred by Counterpart International Inc.
(Counterpart) under a cooperative agreement from the U.S. Agency for International Development (USAID) to
support the Afghan Civic Engagement program.1 The program’s objective was to promote Afghan civil society and
media engagement to influence public policy, government accountability, and political reform. Davis Farr reviewed
$13,270,330 in costs charged to the agreement, and $731,781 in Counterpart’s shared costs from October 1,
2018, through February 15, 2020. Our contract with Davis Farr required that the audit be performed in
accordance with generally accepted government auditing standards issued by the Comptroller General of the
United States.
Based on the results of the audit, SIGAR recommends that the responsible agreement officer at USAID:
           1. Determine the allowability of and recover, as appropriate, $630,418 in questioned costs identified in
              the report.
           2. Advise Counterpart to address the report’s three internal control findings.
           3. Advise Counterpart to address the report’s three noncompliance findings.
Davis Farr discusses the results of the audit in detail in the attached report. We reviewed Davis Farr’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, an opinion on
Counterpart’s Special Purpose Financial Statement. We also express no opinion on the effectiveness of
Counterpart’s internal control or compliance with the agreement, laws, and regulations. Davis Farr is responsible
for the attached auditor’s report and the conclusions expressed in it. However, our review disclosed no instances
in which Davis Farr did not comply, in all material respects, with generally accepted government auditing
standards issued by the Comptroller General of the United States.
Please provide documentation related to corrective actions taken and/or target dates for planned completion for
the recommendations to sigar.pentagon.audits.mbx.recommendation-followup@mail.mil, within 60 days from the
issue date of this report.




John F. Sopko
Special Inspector General
   for Afghanistan Reconstruction



(F-185)

1   The agreement number is AID-306-A-14-00001.

              1550 Crystal Drive, 9th Floor       Mailing 2530 Crystal Drive
              Arlington, Virginia 22202           Arlington, Virginia 22202-3940   Tel 703 545 6000   www.sigar.mil
     COUNTERPART INTERNATIONAL, INC.

        Financial Audit of Costs Incurred Under
    Cooperative Agreement No. AID-306-A-14-00001
       Afghan Civic Engagement Program (ACEP)

For the Period October 1, 2018 through February 15, 2020
                      COUNTERPART INTERNATIONAL, INC.

                         Financial Audit of Costs Incurred Under
                     Cooperative Agreement No. AID-306-A-14-00001
                        Afghan Civic Engagement Program (ACEP)

                For the Period October 1, 2018 through February 15, 2020


                                      Table of Contents


                                                                                 Page
Transmittal Letter                                                                 i

Background                                                                        1

Work Performed                                                                    1

Objectives, Scope, and Methodology                                                2

Summary of Results                                                                4

Review of Prior Findings and Recommendations                                      5

Summary of Counterpart’s Response to Findings                                     6

References to Appendices                                                          6

Independent Auditor’s Report on Special Purpose Financial Statement               7

Special Purpose Financial Statement                                               9

Notes to Special Purpose Financial Statement                                     10

Notes to Questioned Costs Presented on the Special Purpose Financial Statement   13

Report on Internal Control Over Financial Reporting Based on an Audit of the
 Special Purpose Financial Statement Performed in Accordance with
 Government Auditing Standards                                                   14

Report on Compliance and Other Matters Based on an Audit of the
 Special Purpose Financial Statement Performed in Accordance with
 Government Auditing Standards                                                   16

Detailed Audit Findings                                                          18

Status of Prior Findings                                                         25

Appendices:
  Appendix A: Counterpart’s Response to Findings                                 26
  Appendix B: Auditor’s Rebuttal to Counterpart’s Response to Findings           40
                                                                                            Davis Farr LLP
                                                       18201 Von Karman Avenue I Suite 1100 I Irvine, CA 92612
                                                                       Main: 949.474.2020 I Fax: 949.263.5520




February 12, 2021



Enclosed is the final report on the financial audit of costs incurred by Counterpart
International, Inc. (Counterpart) under Cooperative Agreement No. AID-306-A-14-00001
with the United States Agency for International Development (USAID) for the Afghan Civic
Engagement Program (ACEP). The audit covers the period October 1, 2018 through February
15, 2020.

Included within the final report is a summary of the work performed, our report on the Special
Purpose Financial Statement, report on internal control and report on compliance. We do not
express an opinion on the summary or any information preceding our reports.

When preparing our report, we considered comments, feedback and interpretations from
Counterpart, the Special Inspector General for Afghanistan Reconstruction and USAID.
Management of Counterpart has prepared responses to the findings identified during our audit
and those responses are included as part of this report. The responses have not been audited
and we express no opinion on them.

Sincerely,

DAVIS FARR LLP



Marcus D. Davis, CPA
Partner




                                              i
                           COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                     For the Period October 1, 2018 through February 15, 2020


Background

On December 4, 2013, the United States Agency for International Development (USAID) awarded
Cooperative Agreement No. AID-306-A-14-00001 (Agreement) to Counterpart International Inc.
(Counterpart) to support the Promoting Afghan Civic Education (PACE) Program. Modification No. 8
changed the program name to the Afghan Civic Engagement Program (ACEP). The objective of the
program was to promote Afghan civil society and media engagement that enabled Afghan citizens to
influence public policy, monitor government accountability, and serve as advocates for political
reform. This was achieved through:

   (1)   Creating a cross-program area effort to involve more civil society organizations (CSOs) in
         effective policy advocacy that includes organizational and technical sector capacity building,
         network development, research and material presentation, opportunistic advocacy actions
         and prolonged policy campaigns;

   (2)   Supporting anti-corruption and government oversight activities that utilize traditional media
         and the anonymity of social media to educate citizens against corruption, advocate for good
         governance and expose corrupt practices;

   (3)   Providing media support and strengthening services that increase sustainability and quality
         of content in the sector, increase journalist technical knowledge and support CSOs with
         outreach;

   (4)   Delivering civic education in communities through resident activities with the support of
         regional and provincial CSOs and responding to electoral needs with flexible voter education
         and get-out-the-vote grants; and

   (5)   Building and sustaining the capacity of 14 lead and at least 34 CSOs through an enhanced
         CSO strengthening tool-kit, including tiered certification.

The Agreement was awarded in the original ceiling amount of $70,000,000 plus $2,461,116 in cost
share for the period of performance from December 4, 2013 through December 3, 2018. After 18
modifications to the agreement, the total funding increased to $79,120,000 plus $2,389,495 in cost
share and the period of performance extended from December 3, 2018, through February 15, 2020.

Our audit procedures reviewed $13,270,330 of total costs incurred plus $731,781 in cost share for
the period October 1, 2018, through February 15, 2020.


Work Performed

Davis Farr LLP (Davis Farr) was engaged by the Office of the Special Inspector General for
Afghanistan Reconstruction (SIGAR) to conduct a financial audit of Counterpart’s Special Purpose
Financial Statement (SPFS) for the period from October 1, 2018, through February 15, 2020. Total
costs incurred as reported by Counterpart was $13,270,330 plus $731,781 in cost share.




                                                  1
                           COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                     For the Period October 1, 2018 through February 15, 2020


Objectives, Scope, and Methodology

Objectives Defined by SIGAR

The objectives of the audit include the following:

   •    Special Purpose Financial Statement (SPFS) – Express an opinion as to whether Counterpart’s
        SPFS for the Agreement presents fairly, in all material respects, revenues received, costs
        incurred, items directly procured by the U.S. Government, and balance for the period audited
        in conformity with the terms of the Agreement and generally accepted accounting principles
        or other comprehensive basis of accounting.

   •    Internal Controls – Evaluate and obtain a sufficient understanding of Counterpart’s internal
        control related to the Agreement; assess control risk; and identify and report on significant
        deficiencies including material internal control weaknesses.

   •    Compliance – Perform tests to determine whether Counterpart complied, in all material
        respects, with the Agreement requirements and applicable laws and regulations; and identify
        and report on instances of material noncompliance with terms of the award and applicable
        laws and regulations, including potential fraud or abuse that may have occurred.

   •    Corrective Action on Prior Findings and Recommendations – Determine and report on whether
        Counterpart has taken adequate corrective action to address findings and recommendations
        from previous engagements that could have a material effect on the SPFS or other financial
        data significant to the audit objectives.

Scope

The scope of this audit covers $13,270,330 in total costs incurred and $731,781 in cost share for the
period October 1, 2018 through February 15, 2020. The period of performance of the agreement is
complete, and this represents a closeout audit of the Agreement. Our testing of the indirect cost
rates was limited to verifying that the rates were calculated using the rates identified in the
Negotiated Indirect Cost Rate Agreement (NICRA) approved by USAID.

Methodology

To accomplish the objectives of this audit, we designed our audit procedures to include the following:

Entrance Conference

An entrance conference was held via conference call on May 12, 2020.            Participants included
representatives of Davis Farr, Counterpart, SIGAR and the USAID.

Planning

During our planning phase, we performed the following:




                                                     2
                          COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                    For the Period October 1, 2018 through February 15, 2020


   •   Obtained an understanding of Counterpart;

   •   Reviewed the Agreement and all modifications to date;

   •   Reviewed sections of the Code of Federal Regulations (CFR) and the USAID Acquisition
       Regulation (AIDAR), as applicable to the Agreement;

   •   Performed a financial reconciliation; and

   •   Selected samples based on our approved sampling techniques. According to the approved
       Audit Plan, we used the detailed accounting records that were reconciled to the financial
       reports, and based upon the risk assessment and materiality included as part of the approved
       Audit Plan, we performed data mining to assess individual expenditure accounts and
       transactions that were considered to be high, moderate or low risk for inclusion in our test of
       transactions. All samples were selected on a judgmental basis. Our sampling methodology
       was as follows:

          o   For accounts that appear to contain unallowable and restricted items according to the
              terms of the Agreement, 2 CFR Part 200, AIDAR and any other applicable regulations,
              we sampled 100% of the transactions.

          o   For high risk cost categories, we sampled transactions greater than $67,100, and
              additional transactions below $67,100 to ensure that at least 50% of the total amount
              expended for each cost category was sampled.

          o   For moderate risk categories, we sampled transactions that are greater than $134,200,
              and additional transactions below $134,200 to ensure at least 20% of the total amount
              expended for each cost category was sampled.

          o   For low risk categories, we sampled transactions to ensure at least 10% of the costs
              for each low risk cost category was sampled. No sample was selected for indirect costs
              as we tested the proper application of indirect cost rates. This included reviewing the
              NICRA to ensure that Counterpart’s indirect costs did not exceed the approved rates.

Internal Control Related to the SPFS

We reviewed Counterpart’s internal control related to the SPFS. The system of internal control is
intended to provide reasonable assurance of achieving reliable financial reporting and compliance
with applicable laws and regulations. We corroborated internal control identified by Counterpart and
conducted testing of select key controls to understand if they were implemented as designed and
operating effectively.

Compliance with Agreement Requirements and Applicable Laws and Regulations

We reviewed the Agreement and modifications and documented all compliance requirements that
could have a direct and material effect on the SPFS. We assessed inherent and control risk as to
whether material noncompliance could occur. Based upon our risk assessment, we designed



                                                   3
                           COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                     For the Period October 1, 2018 through February 15, 2020


procedures to test a sample of transactions to ensure compliance with the Agreement requirements
and laws and regulations.

Corrective Action on Prior Findings and Recommendations

We reached out to SIGAR, Counterpart and USAID and requested all reports from previous
engagements, as well as searched publicly available information for other reports, in order to
evaluate the adequacy of corrective actions taken on findings and recommendations that could have
a material effect on the SPFS. See the Review of Prior Findings and Recommendations subsection of
this Summary for this analysis.

Special Purpose Financial Statements

In reviewing the SPFS, we performed the following:

   •   Reconciled the costs on the SPFS to the Agreement, modifications and general ledger;
   •   Traced receipt of funds to the accounting records; and
   •   Sampled and tested the costs incurred to ensure the costs were allowable, allocable to the
       Agreement and reasonable. If the results of a judgmental sample indicated a material error
       rate, our audit team consulted with our Audit Manager and Partner as to whether the sample
       size should be expanded. If it appeared that based upon the results of the judgmental sample,
       an entire account was deemed not allowable, we did not expand our testing, but instead
       questioned the entire account.

Exit Conference

An exit conference was held on November 12, 2020 via conference call. Participants included
representatives from Davis Farr, Counterpart, SIGAR and USAID. During the exit conference, we
discussed the preliminary results of the audit and established a timeline for providing any final
documentation for consideration and reporting.


Summary of Results

Our audit of the costs incurred by Counterpart under the Agreement with USAID identified the
following matters. Findings are classified as either 1) internal control, 2) noncompliance, or 3) a
combination of internal control and noncompliance.

Auditor’s Opinion on SPFS

We issued a modified opinion on the fairness of the presentation of the SPFS because of the identified
$630,421 of questioned costs. A summary of findings and questioned costs is described in the next
section.




                                                  4
                            COUNTERPART I NTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306 -A- 14-00001
                             Afghan Civic Engagement Program (ACEP)

                     For the Period October 1, 2018 through February 15, 2020


Summary of Findings and Questioned Costs

                                                                                            Total
                                                                                          Cumulative
 Finding                                                                  Questioned      Questioned
 Number        Nature of Finding                    Matter                  Costs           Costs
             Internal control -
                                       Costs incurred outside of SPFS
 2020 -01    significant deficiency                                           $65,744         $65,744
                                       period
             Noncompliance

             Internal control -
 2020 -02    sign ificant deficiency   Unsupported cost share                $564,674        $630,418
             Noncompliance

             Internal control -
 2020 - 03   significant deficiency    Misclassification of expenses                $0       $630,418
             Noncompliance


Inter nal Control Findings

As part of obtaining reasonable assurance about whether the SPFS is free from material
misstatement, we considered Counterpart's internal control over financia l reporting and performed
tests of those controls. The results of our tests disclosed three interna l control weaknesses required
to be reported under Government Auditing Standards. See Independent Auditor's Report on Internal
Control on page 14.

Compliance Findings

As part of obtaining reasonable assurance about whether the SPFS is free from material
misstatement, we performed tests of its compliance w ith certa in provisions of the Agreement and
other laws and regulations, noncomp liance with which could have a direct and material effect on the
determination of the SPFS . The results of our tests disclosed three instances of noncompliance
related to this audit. See Independent Auditor's Report on Compliance on page 16.

In performing our testing, we considered whether the information obtained during our testing
resulted in either detected or suspected materia l fraud, waste, or abuse, which would be subject to
reporting under Government Auditing Standards. Evidence of such items was not identified by our
testing.


Revie w of Pri o r Findings and Reco mmendations

We requested from Counterpart, SI GAR and USAID copies of any prior engagements including audits,
reviews, attestation engagements and other studies that relate to Counterpart's activities under the
Agreement . We reviewed six prior reports, consisting of four annual financial aud its, including aud its




                                                   5
                          COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                    For the Period October 1, 2018 through February 15, 2020


of federal programs in accordance with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and two
financial audits of the ACEP program performed by independent certified public accounting firms on
behalf of USAID. We did not identify any findings that could have a potential material effect on the
SPFS or other financial data significant to the audit objectives.


Summary of Counterpart’s Responses

The following represents a summary of the responses provided by Counterpart to the findings
identified in this report. The complete responses received can be found in Appendix A to this report.
In addition to this response, Counterpart provided documentation that supports its position on the
findings. Due to the voluminous and proprietary nature of this documentation, it has not been
included within this report. The documentation has been provided to SIGAR under separate cover.

   •   Finding 2020-01: Counterpart disagreed with this finding indicating that the costs, while
       incurred prior to October 1, 2018, were properly reported on the SPFS.

   •   Finding 2020-02: Counterpart disagreed with this finding indicating the cost share was
       incurred and allowable.

   •   Finding 2020-03: Counterpart agreed with this finding, but disagreed with its characterization
       as a significant deficiency.


References to Appendices

The auditor’s reports are supplemented by two appendices, Appendix A, which contains
management’s responses to the audit findings and Appendix B, which contains the auditor’s rebuttal
to management’s comments.




                                                 6
                                                                                            Davis Farr LLP
                                                       18201 Von Karman Avenue I Suite 1100 I Irvine, CA 92612
                                                                       Main: 949.474.2020 I Fax: 949.263.5520




                         INDEPENDENT AUDITOR’S REPORT
                    ON SPECIAL PURPOSE FINANCIAL STATEMENT



Counterpart International, Inc.
2345 Crystal Drive, Suite 301
Arlington, Virginia 22202

Office of the Special Inspector General for Afghanistan Reconstruction
2530 Crystal Drive
Arlington, Virginia 22202


Report on the Special Purpose Financial Statement

We have audited the accompanying Special Purpose Financial Statement of Counterpart
International, Inc. (Counterpart) under Cooperative Agreement No. AID-306-A-14-00001
(Agreement) with the United States Agency for International Development (USAID) to support
the Afghan Civic Engagement Program (ACEP) for the period October 1, 2018 through February
15, 2020, and the related notes to the Special Purpose Financial Statement.

Management’s Responsibility for the Special Purpose Financial Statement

Management is responsible for the preparation and fair presentation of the Special Purpose
Financial Statement in accordance with the methods of preparation described in Note 2; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements (including the Special Purpose
Financial Statement) that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Special Purpose Financial Statement based
on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United
States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Special Purpose Financial Statement is free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the Special Purpose Financial Statement. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of the
Special Purpose Financial Statement, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the Special Purpose Financial Statement in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies




                                             7
Counterpart International, Inc.
2345 Crystal Drive, Suite 301
Arlington, Virginia 22202

Office of the Special Inspector General for Afghanistan Reconstruction
2530 Crystal Drive
Arlington, Virginia 22202

used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the Special Purpose Financial Statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our qualified audit opinion.

Basis for Qualified Opinion

We identified $630,421 of questioned costs, consisting of $65,744 in incurred costs, and
$564,674 in cost share that were material to the Special Purpose Financial Statement. The
questioned costs were due to costs incurred outside of the period covered by the Special
Purpose Financial Statement, as well as unsupported cost share.

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified
Opinion paragraph, the Special Purpose Financial Statement referred to above presents fairly,
in all material respects, the respective revenue received and costs incurred by Counterpart
under the Agreement for the period October 1, 2018 through February 15, 2020 in accordance
with the basis of accounting described in Note 2.

Restriction on Use

This report is intended for the information of Counterpart, USAID, and the Special Inspector
General for Afghanistan Reconstruction (SIGAR), and is not intended to be and should not be
used by anyone other than these specified parties. Financial information in this report may
be privileged. The restrictions of 18 USC 1905 should be considered before any information
is released to the public. However, subject to applicable laws, this report may be released to
Congress and to the public by SIGAR in order to provide information about programs and
operations funded with amounts appropriated or otherwise made available for the
reconstruction of Afghanistan.


Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our reports dated
February 12, 2021 on our consideration of Counterpart’s internal control over financial
reporting and on our tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements and other matters. The purposes of those reports are to
describe the scope of our testing of internal control over financial reporting and compliance
and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. Those reports are an integral part of an audit performed in
accordance with Government Auditing Standards in considering Counterpart’s internal control
over financial reporting and compliance.



Irvine, California
February 12, 2021


                                                8
                                  COUNTERPART INTERNATIONAL, INC.

                                     Financial Audit of Costs Incurred Under
                                 Cooperative Agreement No. AID-306-A-14-00001
                                    Afghan Civic Engagement Program (ACEP)

                                      Special Purpose Financial Statement

                           For the Period October 1, 2018 through February 15, 2020



                                                                    Questioned Costs
                                  Budget      Expenditures      Ineligible   Unsupported       Total       Notes
Revenues:
  AID-306-A-14-00001         $ 79,120,000     $ 13,270,330      $      -     $         -   $       -        (3)

Total revenues                   79,120,000       13,270,330           -               -           -

Costs incurred:
  Personnel                      11,671,003        2,290,698           -               -             -
  Fringe benefits                 3,176,009        1,035,299           -               -             -
  Travel                            966,827          265,871           -               -             -
  Equipment                          34,680           (5,116)          -               -             -
  Supplies                          654,271          120,879           -               -             -
  Contractual                    43,488,659        5,842,681        64,620             -        64,620      (A)
  Other costs                     8,317,594        1,612,479           -               -           -
  Indirect costs                 10,810,957        2,107,539         1,124             -         1,124    (4),(B)

Total costs incurred             79,120,000       13,270,330        65,744             -        65,744

Outstanding fund balance     $          -     $          -      $   (65,744) $         -   $   (65,744) (5),(C),(E)

Cost share                   $    2,389,495   $     731,781     $      -     $ 564,674     $ 564,674      (D),(E)




                         See Notes to Special Purpose Financial Statement
         and Notes to Questioned Costs Presented on the Special Purpose Financial Statement



                                                        9
                            COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                            Notes to Special Purpose Financial Statement1

                     For the Period October 1, 2018 through February 15, 2020


(1)    Background

       On December 4, 2013, the United States Agency for International Development (USAID)
       awarded Cooperative Agreement No. AID-306-A-14-00001 (Agreement) to Counterpart
       International Inc. (Counterpart) to support the Promoting Afghan Civic Education (PACE)
       Program. Modification No. 8 changed the program name to the Afghan Civic Engagement
       Program (ACEP). The objective of the program was to promote Afghan civil society and media
       engagement that enabled Afghan citizens to influence public policy, monitor government
       accountability, and serve as advocates for political reform. This was achieved through:

           (1)   Creating a cross-program area effort to invoice more civil society organizations
                 (CSOs) in effective policy advocacy that includes organizational and technical sector
                 capacity building, network development, research and material presentation,
                 opportunistic advocacy actions and prolonged policy campaigns;

           (2)   Supporting anti-corruption and government oversight activities that utilize traditional
                 media and the anonymity of social media to educate citizens against corruption,
                 advocate for good governance and expose corrupt practices;

           (3)   Providing media support and strengthening services that increase sustainability and
                 quality of content in the sector, increase journalist technical knowledge and support
                 CSOs with outreach;

           (4)   Delivering civic education in communities through resident activities with the support
                 of regional and provincial CSOs and responding to electoral needs with flexible voter
                 education and get-out-the-vote grants; and

           (5)   Building and sustaining the capacity of 14 lead and at least 34 CSOs through an
                 enhanced CSO strengthening tool-kit, including tiered certification.

The Agreement was awarded in the original ceiling amount of $70,000,000 plus $2,461,116 in cost
share for the period of performance from December 4, 2013 through December 3, 2018. The
Agreement was modified 18 times for reasons related to the modification of the project description
and Agreement clauses, extensions to the period of sub-agreement, and revisions to the budget.
Modification 13 included the final revision to the budget and increased the total estimated amount of
the award. Modification 18 made the final extension to the period of performance from December
3, 2018 to February 15, 2020. After the modifications, the Agreement ceiling amount was increased
to $79,120,000 plus $2,389,495 in cost share.




1The Notes to the Special Purpose Financial Statement with a numeric identifier are the responsibility of
Counterpart.


                                                  10
                            COUNTERPART INTERNATIONAL, INC.

                            Financial Audit of Costs Incurred Under
                        Cooperative Agreement No. AID-306-A-14-00001
                           Afghan Civic Engagement Program (ACEP)

                            Notes to Special Purpose Financial Statement

                                            (Continued)


(2)   Summary of Significant Accounting Policies

      Basis of Presentation

      The accompanying Special Purpose Financial Statement (SPFS) includes costs incurred for
      ACEP for the period October 1, 2018 through February 15, 2020. Because the SPFS presents
      only a selected portion of the operations of Counterpart, it is not intended to and does not
      present the financial position, changes in financial position, or cash flows of Counterpart. The
      information in the SPFS is presented in accordance with the requirements specified by the
      Special Inspector General for Afghanistan Reconstruction (SIGAR), accounting principles
      generally accepted in the United States of America, and is specific to the aforementioned
      Agreement.

      Basis of Accounting

      Revenues and expenses on the SPFS are reported on the accrual basis of accounting.
      Revenues are recognized when earned. Expenses are recognized following the cost principles
      contained in 2 CFR 200 Subpart E, wherein certain types of expenses are not allowable or are
      limited as to reimbursement.

      Currency

      The SPFS is presented in U.S. dollars. Counterpart converts any expenses that were paid in
      Afghanis into U.S. dollars by using the last actual conversion rate for transfers made to move
      funds between the U.S. dollar account and the Afghani account.


(3)   Revenue

      Counterpart reported revenue in the amount of $13,349,286 for the period October 1, 2018
      through February 15, 2020. This revenue represented the remaining unrecognized revenue
      under the Agreement.


(4)   Indirect Costs

      Counterpart’s indirect costs were reviewed and approved by USAID in a Negotiated Indirect
      Cost Rate Agreement (NICRA) dated June 9, 2020. The following indirect cost rates were
      applicable to the Agreement:

                                                              Management
               Effective Period               Type           and General (a)     Sub-Handling (b)
              10/1/18 – 9/30/19               Final             28.95%               1.74%
            10/1/19 until amended          Provisional          37.00%               5.85%




                                                11
                         COUNTERPART INTERNATIONAL, INC.

                           Financial Audit of Costs Incurred Under
                       Cooperative Agreement No. AID-306-A-14-00001
                          Afghan Civic Engagement Program (ACEP)

                         Notes to Special Purpose Financial Statement

                                          (Continued)


(4)   Indirect Costs (Continued)

      Base of Application:
      (a) Total costs (including sub-handling costs), excluding management and general
           expenses, in-kind contributions (i.e., donated services, equipment and supplies),
           subcontracts, subgrants, and pass-through costs
      (b) Total subcontract and subgrant cost


(5)   Outstanding Fund Balance

      As of February 15, 2020, there was no outstanding fund balance under the Agreement as the
      SPFS is prepared under the accrual basis of accounting described in Note 2.


(6)   Budget

      The Budget as represented on the SPFS is the budget for the Agreement as a whole. The
      budget is not broken down into the period covered by the SPFS, which is October 1, 2018
      through February 15, 2020.


(7)   Subsequent Events

      Counterpart has evaluated subsequent events through February 12, 2021, which is the date
      the SPFS was available to be issued. On June 9, 2020, Counterpart received a new NICRA
      that finalized the indirect cost rates for the period October 1, 2018 through September 30,
      2019, and established provisional rates from October 1, 2019 until amended. These updated
      final and provisional rates have been reflected in the SPFS.




                                              12
                            COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

         Notes to Questioned Costs Presented on the Special Purpose Financial Statement2

                     For the Period October 1, 2018 through February 15, 2020


There are two categories of questioned costs, ineligible and unsupported. Ineligible costs are those
costs that are explicitly questioned because they are unreasonable, prohibited by the Agreement,
prohibited by applicable laws and regulations, or not Agreement related. Unsupported costs are not
supported with adequate documentation or did not have required prior approvals or authorizations.


(A)    Contractual

       Counterpart reported contractual costs in the amount of $5,842,681 for the period October 1,
       2018 through February 15, 2020. During our audit of these costs, we identified $64,620 of
       costs that were incurred prior to October 1, 2018. See Finding No. 2020-01.


(B)    Indirect Costs

       Counterpart reported indirect costs in the amount of $2,107,539 for the period October 1,
       2018 through February 15, 2020. The indirect cost rates described in Note 4 of the Notes to
       Special Purpose Financial Statement were applied to the associated questioned costs identified
       in Note A, which resulted in questioned (ineligible) indirect costs of $1,127.


(C)    Outstanding Fund Balance

       The total outstanding fund balance as of February 15, 2020 in the amount of $(65,744)
       represents the total questioned ineligible costs of $65,744.


(D)    Cost Share

       Counterpart reported cost share in the amount of $731,781. During our audit of these costs,
       we identified $564,674 of costs that were deemed unsupported. See Finding No. 2020-02.


(E)    Total Questioned Costs

       Total questioned costs are comprised of the following:

             Ineligible contractual costs                   $ 64,620
             Associated ineligible indirect costs              1,124
             Unsupported cost share                          564,674

               Total questioned costs                       $630,418

2 The Notes to Questioned Costs presented on the Special Purpose Financial Statement with an alphabetical
identifier were prepared by Davis Farr LLP for information purposes only and as such are not a part of the
audited Special Purpose Financial Statement.


                                                    13
                                                                                              Davis Farr LLP
                                                         18201 Von Karman Avenue I Suite 1100 I Irvine, CA 92612
                                                                         Main: 949.474.2020 I Fax: 949.263.5520




        REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     BASED ON AN AUDIT OF THE SPECIAL PURPOSE FINANCIAL STATEMENT
    PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS


                            INDEPENDENT AUDITOR’S REPORT



Counterpart International, Inc.
2345 Crystal Drive, Suite 301
Arlington, Virginia 22202

Office of the Special Inspector General for Afghanistan Reconstruction
2530 Crystal Drive
Arlington, Virginia 22202


We have audited, in accordance with the auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards issued by the Comptroller General of the United States, the Special
Purpose Financial Statement of Counterpart International, Inc. (Counterpart) under
Cooperative Agreement No. AID-306-A-14-00001 (Agreement) with the United States Agency
for International Development (USAID) to support the Afghan Civic Engagement Program
(ACEP) for the period October 1, 2018 through February 15, 2020, and the related notes to
the Special Purpose Financial Statement, and have issued our report thereon dated February
12, 2021.


Internal Control over Financial Reporting

In planning and performing our audit of the Special Purpose Financial Statement, we
considered Counterpart’s internal control over financial reporting (internal control) to
determine the audit procedures that were appropriate in the circumstances for the purpose
of expressing our opinion on the Special Purpose Financial Statement, but not for the purpose
of expressing an opinion on the effectiveness of Counterpart’s internal control. Accordingly,
we do not express an opinion on the effectiveness of Counterpart’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the entity’s financial statements will not be
prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency,
or a combination of deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance.




                                              14
Counterpart International, Inc.
2345 Crystal Drive, Suite 301
Arlington, Virginia 22202

Office of the Special Inspector General for Afghanistan Reconstruction
2530 Crystal Drive
Arlington, Virginia 22202

Our consideration of internal control was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control
that might be material weaknesses or significant deficiencies and therefore, material
weaknesses or significant deficiencies may exist that have not been identified. Given these
limitations, during our audit, we did not identify any deficiencies in internal control that we
consider to be material weaknesses. We identified three deficiencies in internal control,
described in the accompanying Detailed Audit Findings as Finding Numbers 2020-01, 2020-
02 and 2020-03 that we consider to be significant deficiencies.


Counterpart’s Response to Findings

Counterpart’s response to the findings identified in our audit is included verbatim in Appendix
A. Counterpart’s response was not subjected to the auditing procedures applied in the audit
of the Special Purpose Financial Statement and, accordingly, we express no opinion on it.


Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and
the result of that testing, and not to provide an opinion on the effectiveness of the entity’s
internal control. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control. Accordingly, this
communication is not suitable for any other purpose.

This report is intended for the information of Counterpart, USAID, and the Special Inspector
General for Afghanistan Reconstruction (SIGAR), and is not intended to be and should not be
used by anyone other than these specified parties. Financial information in this report may
be privileged. The restrictions of 18 U.S.C. 1905 should be considered before any information
is released to the public. However, subject to applicable laws, this report may be released to
Congress and to the public by SIGAR in order to provide information about programs and
operations funded with amounts appropriated or otherwise made available for the
reconstruction of Afghanistan.




Irvine, California
February 12, 2021




                                              15
                                                                                              Davis Farr LLP
                                                         18201 Von Karman Avenue I Suite 1100 I Irvine, CA 92612
                                                                         Main: 949.474.2020 I Fax: 949.263.5520




               REPORT ON COMPLIANCE AND OTHER MATTERS
     BASED ON AN AUDIT OF THE SPECIAL PURPOSE FINANCIAL STATEMENT
    PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS


                            INDEPENDENT AUDITOR’S REPORT



Counterpart International, Inc.
2345 Crystal Drive, Suite 301
Arlington, Virginia 22202

Office of the Special Inspector General for Afghanistan Reconstruction
2530 Crystal Drive
Arlington, Virginia 22202


We have audited, in accordance with the auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards issued by the Comptroller General of the United States, the Special
Purpose Financial Statement of Counterpart International, Inc. (Counterpart) under
Cooperative Agreement No. AID-306-A-14-00001 (Agreement) with the United States Agency
for International Development (USAID) to support the Afghan Civic Engagement Program
(ACEP) for the period October 1, 2018 through February 15, 2020, and the related notes to
the Special Purpose Financial Statement, and have issued our report thereon dated February
12, 2021.


Compliance and Other Matters

As part of obtaining reasonable assurance about whether Counterpart’s Special Purpose
Financial Statement is free from material misstatement, we performed tests of its compliance
with certain provisions of laws, regulations, contracts and the aforementioned Agreement,
noncompliance with which could have a direct and material effect on the determination of
Special Purpose Financial Statement amounts. However, providing an opinion on compliance
with those provisions was not an objective of our audit, and accordingly, we do not express
such an opinion. As we performed our testing, we considered whether the information
obtained during our testing indicated the possibility of fraud or abuse. The results of our tests
disclosed three instances of noncompliance or other matters that is required to be reported
under Government Auditing Standards and which is described in the accompanying Detailed
Audit Findings as Finding Numbers 2020-01, 2020-02 and 2020-03.




                                              16
Counterpart International, Inc.
2345 Crystal Drive, Suite 301
Arlington, Virginia 22202

Office of the Special Inspector General for Afghanistan Reconstruction
2530 Crystal Drive
Arlington, Virginia 22202

Counterpart’s Response to Findings

Counterpart’s response to the findings identified in our audit is included verbatim in Appendix
A. Counterpart’s response was not subjected to the auditing procedures applied in the audit
of the Special Purpose Financial Statement and, accordingly, we express no opinion on it.


Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of compliance and the
results of that testing, and not to provide an opinion on compliance. This report is an integral
part of an audit performed in accordance with Government Auditing Standards in considering
the entity’s internal control. Accordingly, this communication is not suitable for any other
purpose.

This report is intended for the information of Counterpart, USAID, and the Special Inspector
General for Afghanistan Reconstruction (SIGAR), and is not intended to be and should not be
used by anyone other than these specified parties. Financial information in this report may
be privileged. The restrictions of 18 U.S.C. 1905 should be considered before any information
is released to the public. However, subject to applicable laws, this report may be released to
Congress and to the public by SIGAR in order to provide information about programs and
operations funded with amounts appropriated or otherwise made available for the
reconstruction of Afghanistan.




Irvine, California
February 12, 2021




                                              17
                            COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                                        Detailed Audit Findings

                     For the Period October 1, 2018 through February 15, 2020


Finding 2020-01: Costs Incurred Outside of SPFS Period

Nature of Finding:
Internal control – significant deficiency
Noncompliance


Condition:
Counterpart prepared its SPFS on the accrual basis of accounting, but recorded some transactions
on the cash basis of accounting which overstated costs for the period audited. We tested 350 out of
2,604 contractual transactions totaling $2,343,325 out of $5,842,681 in total costs. Counterpart
included 7 contractual transactions totaling $64,620 which were incurred prior to October 1, 2018
on its SPFS.


Cause:
Counterpart’s supervisors did not review and approve the invoices for payment in a timely manner
prior to October 1, 2018. As such, the invoices were not be recorded in the general ledger until
proper approvals were obtained.


Criteria:
2 CFR 200.34 , Expenditures, states, in part:

       “Expenditures means charges made by a non-Federal entity to a project or program
       for which a Federal award was received.

       (a) The charges may be reported on a cash or accrual basis, as long as the
       methodology is disclosed and is consistently applied…

       (c) For reports prepared on an accrual basis, expenditures are the sum of:

       (1) Cash disbursements for direct charges for property and services;

       (2) The amount of indirect expense incurred;

       (3) The value of third-party in-kind contributions applied; and

       (4) The net increase or decrease in the amounts owed by the non-Federal entity for:…

       (ii) Services performed by employees, contractors, subrecipients, and other
       payees;…”

Counterpart’s Project Field Office Financial Procedures Manual dated September 1, 2019, Section
3.4, Accrual Accounting, states, in part:



                                                  18
                           COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                                       Detailed Audit Findings

                                            (Continued)


       “Counterpart Field offices must follow the accrual basis of accounting, whereby
       revenue is recognized when earned ad expenses are recognized when incurred…”

Additionally, Counterpart’s Project Field Office Financial Procedures Manual dated September 1,
2019, Section 3.4.2, Accrued Expenses, states, in part:

       “For the below items of which expenses have been incurred in current period, while
       the payments have not been made before month end, the expenses and liabilities
       should be recorded, or accrued, in current period before book closing:

       ▪   Goods or service are delivered and invoiced…”


Effect:
Not reporting contractual expenses on the accrual basis of accounting resulted in an overstatement
of contractual costs incurred for the period October 1, 2018 through February 15, 2020, as well as
noncompliance with Federal regulations and Counterpart’s procedures.


Questioned Costs:
Total ineligible questioned costs are $65,744, which consists of $64,620 in contractual costs incurred
prior to October 1, 2018 plus $1,124 of associated indirect costs.


Recommendation:
(1) We recommend that Counterpart either provide evidence that the costs incurred outside of the
    audit period were not previously billed to USAID, or return $65,744 to the U.S. Government.

(2)   We recommend that Counterpart establish procedures to review future special purpose financial
      statements prior to submission to ensure that costs are reported on the accrual basis of
      accounting, and to provide training to appropriate individuals to ensure procedures are
      implemented correctly.




                                                 19
                            COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                                        Detailed Audit Findings

                                             (Continued)


Finding 2020-02: Unsupported Cost Share

Nature of Finding:
Internal control – significant deficiency
Noncompliance


Condition:
Counterpart reported $731,781 in cost share for the period October 1, 2018 through February 15,
2020. This cost share was entirely incurred by one of its major subcontractors, Aga Khan Foundation
(AKF). We tested one transaction in the amount of $585,313. Of this amount, AKF made $564,674
in the form of a certificate of deposit (CD) under the Sustainability Fund to benefit the Afghanistan
Organization of Civil Society (AICS). The CD was purchased on December 3, 2018 for a term of one
year and matured on December 3, 2019. However, Counterpart did not provide documentation to
support how the funds were ultimately expended. Additionally, we could not determine the source
of the funds used for the CD. It was unclear as to whether these funds represented AKF’s funds for
the cost-share, or whether they were provided by another federal program. We inquired to determine
the status of the funds at maturity, but Counterpart did not provide any documentation for our
review. Based on the incomplete and limited documentation provided, we were unable to determine
whether the funds were ultimately expended on allowable goods or services.


Cause:
Counterpart included a cost share requirement in its subcontract with AKF. Counterpart indicated
that since AKF invested the funds in a CD for the benefit of AICS, that Counterpart’s cost share
obligation was met. However, Counterpart did not maintain documentation of this transaction.


Criteria:
2 CFR 200.405, Allocable costs, states, in part:

       “(a) A cost is allocable to a particular Federal award or other cost objective if the
       goods or services involved are chargeable or assignable to that Federal award or cost
       objective in accordance with relative benefits received…”

Agreement Section A.14, Cost Sharing, states:

       “The Recipient agrees to expend an amount not less than $2,461,119 of total activity
       costs. Cost share commitments are legally binding.”

The cost share amount was reduced in Modification 8 to $2,389,495.




                                                   20
                          COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                                      Detailed Audit Findings

                                            (Continued)


2 CFR 200.306 (b), Cost sharing or matching, states, in part:

       “(b) For all Federal awards, any shared costs or matching funds and all contributions,
       including cash and third party in-kind contributions, must be accepted as part of the
       non-Federal entity’s cost sharing or matching when such contributions meet all of the
       following criteria:

       (1) Are verifiable from the non-Federal entity’s records;

       (2) Are not included as contributions for any other Federal award;

       (3)   Are necessary and reasonable for accomplishment of project or program
       objectives;

       (4) Are allowable under Subpart E—Cost Principles of this part;

       (5) Are not paid by the Federal Government under another Federal award, except
       where the Federal statute authorizing a program specifically provides that Federal
       funds made available for such program can be applied to matching or cost sharing
       requirements of other Federal programs;

       (6) Are provided for in the approved budget when required by the Federal awarding
       agency; and

       (7) Conform to other provisions of this part, as applicable…”

While the reported cost share meets some of the above requirements, it does not meet or we have
not been provided documentation indicating that it meets the requirements of items 1, 2, 4 and 5
above.


Effect:
Lack of sufficient documentation to support whether cost-share funds represented AKF’s actual funds
and whether cost-share funds were expended resulted in Counterpart’s inability to demonstrate that
it met its cost share requirement.


Questioned Costs:
Total unsupported questioned costs were $564,674.


Recommendation:
(1) We recommend that Counterpart either provide evidence that its cost share funds were actually
    AKF’s funds used for the cost-share and expended, or return $564,674 to the U.S. Government.




                                                21
                         COUNTERPART INTERNATIONAL, INC.

                            Financial Audit of Costs Incurred Under
                        Cooperative Agreement No. AID-306-A-14-00001
                           Afghan Civic Engagement Program (ACEP)

                                    Detailed Audit Findings

                                         (Continued)


(2)   We recommend that Counterpart establish procedures to ensure that it fully documents all
      expenses being claimed as cost share and train staff on these procedures.




                                              22
                            COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                                        Detailed Audit Findings

                                              (Continued)


Finding 2020-03: Misclassification of Expenses

Nature of Finding:
Internal control – significant deficiency
Noncompliance


Condition:
We tested 28 out of 795 travel transactions totaling $133,859 out of $265,871 of total travel costs
incurred, and noted two transactions totaling $12,822 that related to printing of election materials
and a women’s ACEP directory booklet that should have been reported under other direct costs
(ODC). These costs were otherwise allowable under the terms of the Agreement. Counterpart
provided documentation to show reclassification of the costs correctly. Therefore, we did not report
any questioned costs because all those costs were allowable by the agreement.


Cause:
Counterpart incorrectly coded the other direct costs as travel costs due to clerical error.


Criteria:
2 CFR 200.403 , Factors affecting allowability of costs, states, in part:

       “Except where otherwise authorized by statute, costs must meet the following general
       criteria in order to be allowable under Federal awards:…

       (b) Conform to any limitations or exclusions set forth in these principles or in the
       Federal award as to types or amount of cost items…

       (e) Be determined in accordance with generally accepted accounting principles
       (GAAP)…”

2 CFR 200.405, Allocable costs, states, in part:

       “(a) A cost is allocable to a particular Federal award or other cost objective if the
       goods or services involved are chargeable or assignable to that Federal award or cost
       objective in accordance with relative benefits received…”


Effect:
Misclassification of costs on the SPFS could result in unallowable or unallocable costs billed under the
Agreement. In addition, misclassifications could result in amounts billed in excess of Agreement
budget amounts.




                                                   23
                          COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                                      Detailed Audit Findings

                                           (Continued)


Questioned Costs:
There are no questioned costs associated with this finding because the costs have been reclassified
on the SPFS. After reclassification, the dollar amount of the individual line items are within the
budget.


Recommendation:
(1) We recommend that Counterpart implement procedures to ensure that a supervisor is required
    to review the preparation of future SPFSs to ensure that individual costs are charged and
    reported in accordance with the budget classifications per the award.

(2)   We recommend that training be provided to individuals responsible for coding transactions to
      ensure that procedures are implemented correctly.




                                                24
                           COUNTERPART INTERNATIONAL, INC.

                             Financial Audit of Costs Incurred Under
                         Cooperative Agreement No. AID-306-A-14-00001
                            Afghan Civic Engagement Program (ACEP)

                                    Status of Prior Audit Findings

                     For the Period October 1, 2018 through February 15, 2020


We requested from Counterpart, SIGAR and USAID copies of any prior engagements including audits,
reviews, attestation engagements and other studies that relate to Counterpart’s activities under the
Agreement. We reviewed six prior reports, consisting of four annual financial audits, including audits
of federal programs in accordance with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and two
financial audits of the ACEP program performed by independent certified public accounting firms on
behalf of USAID. We did not identify any findings that could have a potential material effect on the
SPFS or other financial data significant to the audit objectives.




                                                 25
                                                                               APPENDir· '\-1.a.
                                                                         COUNTERPART -1-1-
                                                                                  INTERNATIONAL               :1-zt,
January 29, 2021

Marcus D. Davis, CPA
Partner
Davis Farr LLP



Dear Mr. Davis,

Re: Financial Audit of Counterpart International, lnc.'s Afghan Civic Engagement Program

Attached please find Counterpart International lnc.'s (Counterpart) management response to
Davis Farr's report to be submitted to Office of the Special Inspector General for Afghanistan
Reconstruction with respect to financial audit of Counterpart's cooperative agreement number
AID-306-A-14-00001 with the United States Agency for International Development ("USAID")
funding the Afghan Civic Engagement Program for the Period October 1, 2018 through February
15, 2020.

We appreciate the opportunity to respond to the findings and to provide additional information
and clarification.

Please let us know if you have any clarifying questions on our submission.




Chief Financial Officer




                                                                      2345 Crystal Drive Suite 301, Arlington, VA 22202
                                                               T: 571.447.5700 F- 703.412.5035 www.counterpart.org
                                               1

                                              26
                                                                                               APPENDir·         '\-1.a.
                                                                          COUNTERPART                           :t.li.!.i
                                                                                   INTERNATIONAL                ~•-,•~
                                                                                                                   '!''!9



Finding 2020-01: Costs Incurred Outside of SPFS Period

Nature of Finding:
Internal control - significant deficiency
Noncom pl ian ce

Condition:
Counterpart prepared its SPFS on the accrual basis of accounting, but recorded some transactions
on the cash basis of accounting which overstated costs for the period audited. We tested 350 out
of 2,604 contractual transactions totaling $2,343,325 out of $5,842,681 in tota l costs.
Counterpart included 7 contractual transactions totaling $64,620 which were incurred prior to
October 1, 2018 on its SPFS.

Cause:
Counterpart's supervisors were did not review and approve the invoices for payment in a timely
manner prior to October 1, 2018. As such, the invoices were not be recorded in the general ledger
until proper approvals were obtained .

Criteria:
2 CFR 200.34, Expenditures, states, in part:

"Expenditures means charges made by a non-Federal entity to a project or program for which a
Federa l award was received.

(a) The charges may be reported on a cash or accrual basis, as long as the methodo logy
    is disclosed and is consistently applied ...

(c) For reports prepared on an accrual basis, expenditures are the sum of:

       (1) Cash disbursements for direct charges for property and services;

       (2) The amount of indirect expense incurred;

       (3) The va lue of third-party in-kind contributions applied; and

       (4) The net increase or decrease in the amounts owed by the non-Federal entity for: ...

(ii)   Services performed by emp loyees, contractors, subrecipients, and other payees;"

Counterpart's Project Field Office Financial Procedures Manual dated September 1, 2019, Section
3.4, Accrual Accounting, states, in part:
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"Counterpart Field offices must follow the accrual basis of accounting, whereby revenue is
recognized when earned ad expenses are recognized when incurred ... "

Additionally, Counterpart's Project Field Office Financial Procedures Manua l dated September 1,
2019, Section 3.4.2, Accrued Expenses, states, in part:

       "For the below items of which expenses have been incurred in current period, while the
       payments have not been made before month end, the expenses and liabilities should be
       recorded, or accrued, in current period before book closing:

       •   Goods or service are delivered and invoiced ... "

Effect:
Not reporting contractual expenses on the accrual basis of accounting resulted in an
overstatement of contractua l costs incurred for the period October 1, 2018 through February 15,
2020, as well as noncompliance with Federal regulations and Counterpart's procedures.

Questioned Costs:
Total ineligible questioned costs are $65,744, which consists of $64,620 in contractual costs
incurred prior to October 1, 2018 plus $1,124 of associated indirect costs.

Recommendation:
We recommend that Counterpart either provide evidence that the costs incurred outside of the
audit period were not previously billed to USAID or return $65,744 to the U.S. Government.

We recommend that Counterpart establish procedures to review future special purpose financial
statements prior to submission to ensure that costs are reported on the accrual basis of
accounting, and to provide training to appropriate individuals to ensure procedures are
implemented correctly.

Counterpart Management Response:
Counterpart respectfully disagrees with the condition, cause and finding. The questioned costs
were properly included in the SPFS in accordance with 2 CFR 200.403, as they were recorded in
the period covered by the audit in accordance with GAAP, and in accordance with Counterpart' s
standard accounting practice regarding subgrantee costs in high-risk enviro nments where
Counterpart takes an extra level of due diligence and additiona l scrutiny on grantees' expense
documentation. According to our subrecipient risk assessment, the grantee was categorized as
high risk, and therefore required more monitoring and additional due diligence on its financial
documentation consistent with our Subrecipient Monitoring (SRM) guidance and early detection
of fraud, before the costs can be accepted and recorded in the books. Counterpart maintains
strong financial accounting and interna l controls systems to ensure that costs are not double
bi ll ed to USAID, including robust financial grant tracking and monitoring systems, reconciliations
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                                                                          COUNTERPART                           :t.!.i.!.Y.
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of grantee reports with Counterpart accounting records and thorough review of grantee
documentation to ensure compliance with cost principles outlined under 2CFR200 Part E and
responsible use of Federal funds. Consequently, Counterpart' s accounting treatment by no
means constitutes a deficiency, let alone a significant deficiency.

These costs were recorded consistent with GAAP, and consistent with the accounting treatment
used by Counterpart in its annual audited financial statements. Counterpart has consistently
received clean audit opinions on these financial statements, which include subgrantee costs
which are treated on a basis consistent with the treatment of these costs. Moreover, this practice
is the standard industry practice, and is widely recognized as proper by USAID.

Counterpart confirms that the questioned costs are not double billed to USAID. Please refer to
the Finding 2020-01 Annex 1 for each questioned transaction, which includes:
       •   Finding 2020-01 . GL Extract of Questioned Costs
       •   Finding 2020-01. General Ledger details recorded for the life-of-project grant
           expenditures of OHSA Grant agreement No. 18-03-03
       •   Finding 2020-01. Grant completion certificate certified by OHSA and Counterpart for
           Grant Agreement No. 18-03-03
       •   Finding 2020-01. General Ledger details recorded for the life-of-project grant
           expenditures of ACSFO Grant agreement No. 18-02-02
       •   Finding 2020-01. Grant completion certificate certified by ACSFO and Counterpart for
           Grant Agreement No. 18-02-02
       •   Finding 2020-01. General Ledger details recorded for the life-of-project grant
           expenditures of FEFAO Grant agreement No. 18-04-01
       •   Finding 2020-01. Grant completion certificate certified by FEFAO and Counterpart for
           Grant Agreement No. 18-04-01

Note that the questioned transactions and related costs highlighted in the ledger details are not
duplicated and that the total amount of life-of-project expenditures agrees with those in the
grant completion certificates. This clearly demonstrates that the Counterpart's accounting
records reconcile with the grantees' records, thereby evidencing that the questioned were not
previously billed to USAID.

The questioned costs of $64,620 relate to financial reports of subgrantees for costs incurred prior
to October 1, 2018, but not received, certified, and reviewed as of that date. It is Counterpart' s
standard practice to only accrue grantee costs at the end of the financial year if:

   •   The financial reports are submitted and certified by the grantees prior to the cut-off date
       of final annual close of books (normally by October 31 following the close of Counterpart
       financial year end date of September 30); and
   •   The accrual amounts are certain, and it can be reasonably expected that the reported
       amounts are supported with adequate documentation in compliance with cost principles
       outlined in 2CFR200 Subpart E and would be accepted upon final review by Counterpart.
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These subgrantee costs did not meet the above criteria as of the September 30, 2018 date, and
accordingly, were not accrued pursuant to Counterpart's standard accounting practices. As the
ACEP program was implemented in Afghanistan, a high-risk environment with a high Corruption
Index from Transparency International, Counterpart believes its due diligence practices are
prudent and in compliance with GAAP, whereby the costs were properly not accrued nor billed
to USAID until the financial reports were fully reviewed and accepted, which occurred
subsequent to September 30, 2018.

For the above reasons, Counterpart respectively disagrees with the recommendation #2 above
related to the questioned costs. The questioned costs were accepted and recorded in the period
covered by current Special Purpose Financial Statements (SPFS) and not included in the SPFS for
the ACEP program audited by SIGAR and Office of Inspector Genera l for previous years during
the life of the award. Counterpart has implemented proper procedures to prepare and review
the SPFS and ensure compliance with GAAP and 2CFR200 before submission to the auditors.



Finding 2020-02: Unsupported Cost Share

Nature of Finding:
Internal control - significant deficiency
Noncompliance

Condition:
Counterpart reported $731,781 in cost share for the period October 1, 2018 through February
15, 2020. This cost share was entirely incurred by one of its major subcontractors, Aga Khan
Foundation (AKF). We tested one transaction in the amount of $585,313. Of this amount, AKF
made $564,674 in the form of a certificate of deposit (CD ) under the Sustainability Fund to benefit
the Afghanistan Organization of Civil Society (AICS). The CD was purchased on December 3, 2018
for a term of one year and matured on December 3, 2019. However, Counterpart did not provide
documentation to support how the funds were ultimately expended. Additionally, we cou ld not
determine the source of the funds used for the CD. It was unclear as to whether these funds
represented AKF's funds for the cost-share, or whether they were provided by another federal
program. We inquired to determine the status of the funds at maturity, but Counterpart did not
provide any documentation for our review. Based on the incomplete and limited documentation
provided, we were unable to determine whether the funds were ultimately expended on
allowable goods or services.

Cause:
Counterpart included a cost share requirement in its subcontract with AKF. Counterpart indicated
that since AKF invested the funds in a CD for the benefit of AICS, that Counterpart's cost share
obligation was met. However, Counterpart did not maintain documentation of this transaction.


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                                                                              COUNTERPART                          :t.!.i.!.i
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Criteria:
2 CFR 200.405, Allocable costs, states, in part:

"(a ) A cost is allocable to a parti cular Federal award or other cost objective if the goods or services
involved are chargeable or assignable to that Federal award or cost objective in accordance with
relative benefits received ... "

Agreement Section A.14, Cost Sharing, states:

"The Recipient agrees to expend an amount not less than $2,461,119 of total activity costs. Cost
share commitments are legally binding."

The cost share amount was reduced in Modification 8 to $2,389,495.

2 CFR 200.306 (b), Cost sharing or matching, states, in part:

"(b) For all Federal awards, any shared costs or matching funds and all contributions, including
cash and third party in-kind contributions, must be accepted as part of the non-Federal entity' s
cost sharing or matching when such contributions meet all of the following criteria:

    (1) Are verifiable from the non-Federa l entity's records;

    ( 2) Are not included as contributions for any other Federal award;

    (3) Are necessary and reasonable for accomplishment of project or program objectives;

    ( 4) Are allowable under Subpart E-Cost Principles of this part;

    ( 5) Are not paid by the Federa l Government under another Federa l award, except where the
         Federa l statute authorizing a program specifically provides that Federal funds made
         available for such program can be applied to matching or cost sharing requirements of
         other Federal programs;

    ( 6) Are provided for in the approved budget when required by the Federal awarding agency;
         and

    (7) Conform to other provisions of this part, as applicable ..."

While the reported cost share meets some of the above requirements, it does not meet or we
have not been provided documentation indicating that it meets the requirements of items 1, 2,
4 and 5 above.



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Effect:
Lack of sufficient documentation to support whether cost-share funds represented AKF's actual
funds and whether cost-share funds were expended resulted in Counterpart's inability to
demonstrate that it met its cost share requirement.

Questioned Costs:
Total unsupported questioned costs were $564,674.

Recommendation:
We recommend that Counterpart either provide evidence that its cost share funds were actua lly
AKF'sfunds used for the cost-share and expended or return $564,674 to the U.S. Government.

We recommend that Counterpart establish procedures to ensure that it fully documents all
expenses being claimed as cost share and train staff on these procedures.

Counterpart Management Response:
Counterpart respectfully disagrees with the condition, cause and the finding. Counterpart
provided evidence throughout the period of audit to Davis Farr LLP supporting the subrecipient's
cost share for the grant including the requested Finding 2020-02. Annex 6: -           voucher,
GL reference, selection of investment manager,_ Bank statement, transfer instructions
and voucher and Memorandum of Understanding for the permanent Investment Committee,
USAID correspondence related to Aga Khan Foundation (AFK) contribution, AKF's cost share
certification. The last submission included AKF's management response letter on November 10,
2020 together with underlying documentation. In its response below, Counterpart provides
additional background for the purpose of the cost share, resubmits evidence that the funds are
from AKF's unrestricted accounts and how the cost share contribution requirement was met.

As background, ACEP's objectives aligned with USAID/Afghanistan Mission's Objectives including
increasing civil society organizations' (CSO) organizational capacity and long-term sustainability
and are included in ACE P' s Theory of Change (Modification No. 9 to the cooperative agreement).
One of the challenges of Afghan CSOs' sustainabi lity is financia l sustainability and the
dependence on donor funds to operate. As part of its Afghan First approach, the ACEP program
focused on these objectives in several ways including building AICS's capacity to certify Afghan
CSOs and developing its long-term organizational and financial sustainability. Counterpart's
consortium member and grantee, AKF had been incubating AICS, an Afghan CSO that certified
local CSOs' capacity. In the program description of Counterpart's cooperative agreement with
USAID, under 5.4 Institutionalize CSO Legitimacy and Accountability through Certification-
Catalyzing the AICS, one of the program activities was, through the grant to AKF, for ACEP to
" ... develop a long-term sustainability plan, including development of an institutional asset base
through diversified funding to ensure from the outset a strategy to incrementally reduce reliance
on internationa l donors for AICS (Modification No. 9 to the cooperative agreement)". AF K's long
term sustainability plan included an innovative, non-traditiona l sustainability platform (asset
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                                                                          COUNTERPART                           :t.!.i.!.Y.
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base) as part of its cost share commitment to developing long term, diverse, financial funding for
AICS that is independent from international donor funding, thus contributing to sustaining AICS
and extending the program benefits received after the ACEP funding ended.

The purpose of the cost share contribution was for AKF to use its unrestricted funds to cata lyze
an investment fund with a diversified asset base (as planned in cooperative agreement's Program
Description) by creating a certificate of deposit (CD) designated to the AICS Sustainability
Platform fund. The eligible cost share was the principal amount in the CD. The resultant earnings
would be available for AICS' future use, contributing to its sustainability and reducing its
dependence on international donor funding, and transfer capita lized funding to AICS after
receiving approval from the permanent Investment Committee. The permanent Investment
Committee, AFK's governance structure, is in place to oversee the AICS Sustainability Platform
fund and ensures that the disbursements are made in accordance with " ... laws of the District of
Columbia, USA and principles of US federal grants law" (Finding 2020-02. Annex 9 Section B.5.11
Governing Law and Dispute Resolution) for AICS's program and organizational sustainability. AKF
reconciles the Sustainability Platform account on a monthly basis along with all other bank
accounts. Additionally, under the 0MB Uniform Guidance, AKF is audited annually, including the
AICS Sustainability Platform.

Counterpart hereby incorporates AKF's management response letter verbatim to clarify how this
non-traditional, innovative cost share is used for the long-term sustainability of AICS, one of the
objectives of the ACEP program, and per 2 CFR 200.306(b)(3) is necessary and reasonable for the
accomplishment of the program objectives of financial sustainability of AICS, are verifiable from
its records (audit reports), not included as contributions for any Federal Award (taken from
unrestricted funds from AKF fund raising campaigns), and are not paid by the Federal government
under another Federal award. Additionally, Counterpart submits the following Annexes
referenced in AKF's letter as evidence to support the cost share.

       •   Finding 2020-02. ACEP SIGAR Audit 2020_Mangement Response - Final
       •   Finding 2020-02. Annex 1 - Modification #9 to the agreement between AKF USA and
            Counterpart International
       •   Finding 2020-02. Annex 2 - Investment Committee Bylaws
       •   Finding 2020-02. Annex 3: Certification from AKF's Regional CFO for North America on
            the Origin of ACEP's Cost Share
       •   Finding 2020-02. Annex 4: AKF Uniform Guidance Audit Report- FY 2018 - 2019
       •   Finding 2020-02. Annex 5: AKF ACEP 2018 Q4 Financial Report
                                                    including voucher, GL reference, selection of
           investment manager,              Bank statement, transfer instructions and voucher.
       •   Finding 2020-02. Annex 7: Confirmation of Sustainability Funds Balance Statement
           from A/CS
       •   Finding 2020-02. Annex 8 : - Confirmation Letter
       •   Finding 2020-02. Annex 9: Memorandum of Understanding for the permanent
           Investment Committee
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                                                                           COUNTERPART                          :t.!.i.!.i
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       •   Finding 2020-02. Annex 10: ACEP Year 6 approved Annual Work Plan (see page 37}
       •   Finding 2020-02. Annex 11: Modification #11 to the agreement between AKF USA and
           Counterpart International

AK F's verbatim management letter to Counterpart dated January 22, 2021 and signed b. .
                                                                     (Finding 2020-02. ACEP
5/GAR Audit 2020_Mangement Response - Final}:

      The purpose of the AICS Sustainability Platform under the ACEP project, as approved and
      formalized in the Year 6 Annual Work Plan and Modifications #9 and #11 of the agreement
      between AKF USA and Counterpart International, was to develop an institutional asset
      base for AICS, which wi ll enab le diversified funding and reduce reliance on international
      donor funds over the long term and beyond the period of the ACEP project itself. In
      particular, I would like to refer you to Mod ification No. 9, Activity 5.4: Institutionalize CSO
      Legitimacy and Accountabi lity through Certification - Catalyzing the AICS. Under this
      activity, which was approved by USAID, we committed to developing a long-term
      sustainability plan for AICS, including the development of an institutional asset base
      through diversified funding, to ensure from the outset a strategy to incrementa lly reduce
      reliance on international donors. (Annex 1 - Modification #9 to the agreement between
      AKF USA and Counterpart International}.

      USAID, Counterpart International, and AKF agreed that providing a source of long-term
      funding to a fledgling Afghan civi l society institution, one that out lasted the time-bound
      project, was an important deliverable of ACEP, in-line with the ACE P's goal and objectives.
      The establishment of the Sustainability Platform as a fund was the main approved
      del iverable agreed to under ACEP; the fund was never intended to procure specific goods
      and services, but rather to invest in the financial sustainability of AICS. As codified in the
      AICS Investment Committee Bylaws, "the funds invested by AKF USA shall be used
      exclusively in support of AICS and not for any other purposes". Furthermore, the bylaws
      stipulate that "The intended impact of the funds is for AICS program and organizationa l
      sustainability." (Annex 2 - Investment Committee Bylaws). The Investment Committee,
      formally established in June 2019, was put in place to provide approval for AICS' use of
      funds and to ensure the proper stewardship of the Sustainability Platform. In keeping with
      the purpose of the Sustainability Platform to provide long-term support to AICS beyond
      ACEP, no AICS Sustainability Platform funds were expended during the life of the ACEP
      Project. AKF's capitalization of the fund in December 2018 serves as its cost share
      expenditure under the ACEP
      award .
      Annex 1 - Modification #9 to the agreement between AKF USA and Counterpart
      International
      Annex 2 - Investment Committee Bylaws



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                                                                   COUNTERPART                           :t.!.i.!.f.
                                                                            INTERNATIONAL                '!"l'l'I'!"
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In response to the detailed audit findings of costs incurred under ACEP, please find below
additiona l documentation to demonstrate that the cost share provided under this grant
aligns with sections 1, 2, 4, and 5 of 2 CFR 200.405. AKF confirms that the allocable costs:

Are verifiable from the non-Federal entity's records

There are several ways in which AKF can confirm that the cost share funds are verifiable
from AKF's records.

The funds used for creating the Certificate of Deposit (CD) designated to the AICS
Sustainability Platform are sourced from AKF USA's unrestricted internal funds and are
verifiable on AKF books of accounts by an exclusive grant code,-          . The attached
Annex 3: Certification from AKF's Regional CFO for North America on the Origin of ACEP's
Cost Share certifies that the funds originated from AKF USA cost share, which is sourced
from individual contributions to AKF fundraising campaigns.

AKF USA assigns a separate grant code for every individual matching component of a grant
against its respective externally funded component. AKF USA' s accounting system allows
for the recording, tracking, and reporting of matching expenses separately from those of
external funds, disaggregated by grant. The accounting for every component of AKF USA's
grant portfolio is subject to the Foundation' s annual A-133 {Uniform Guidance) statutory
audit. Please see Annex 4: AKF Uniform Guidance Audit Report- FY 2018 - 2019 for more
information. In December 2018, when the Sustainability Fund was established, AKF
capitalized the CO as Investments in its Financial Statements. AKF reported this expense
to USAID in Quarter 4 of 2018. Please see Annex 5: AKF ACEP 2018 Q4 Financial Report
for more details.

The capitalization of the Sustainabi lity Fund was expensed against the project
              with a payable to AICS (Annex 6,                    GL 2018). The funds are
tracked by a distinct general ledger account on both the asset and liability sides
(respectively account code                                             and account code
                                    ). Future transfers from the funds were made to AICS
at their request following approval of the Investment Committee, which reviews and
approves all requests. The transfers were credited from the Sustainability Platform
account, reducing AKF's payables to AICS. AKF USA reconciles this account on a monthly
basis along with all other bank accounts. (Annex 7: Confirmation of Sustainability Funds
Balance Statement from A/CS) .

The attached letter, Annex 8, JP Morgan Confirmation Letter, provides proof that upon
maturity, the account was closed and that funds were posted into AKF USA's AICS
Sustainability Platform, demonstrating that AICS is the ultimate recipient of the funds. Per
the attached Annex 9: Memorandum of Understanding for the permanent Investment
Committee, and Annex 2: Investment Commi ttee Bylaws, the determination of the use of
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                                                                    COUNTERPART                           :t.!.i.!.f.
                                                                             INTERNATIONAL                '!'-I-T-1-1!'
the funds after the close-out of the ACEP project is solely at the discretion of the
Investment Committee, guided by the Committee's Bylaws, which state that "the
intended impact of the funds is for AICS program and organizational sustainability." It is
the responsibi lity of the Investment Committee to ensure the proper stewardship of the
Susta i nabi Iity Platform.

Annex 3: Certification from AKF's Regional CFO for North America on the Origin of ACEP's
CostShare



      6:-
Annex 4: AKF Uniform Guidance Audit Report- FY 2018 -2019
Annex 5: AKF ACEP 2018 Q4 Financial Report
Annex                including voucher, GL reference, selection of investment manager,              •
Annex 8-
- B a n k statement, transfer instructions and voucher.
Annex 7: Confirmation of Sustainability Funds Balance Statement from A/CS
                     Confirmation Letter
Annex 9: Memorandum of Understanding for the permanent Investment Committee
Annex 2: Investment Committee Bylaws

Are not included as contributions for any other Federal award;
The funds used for the AICS Sustainability Fund have not been used as contributions for
any other Federal Award. AKF USA has documentation to support all aspects of the
establishment, management, and disbursement of the Fund. In particular:
Each project is audited for compliance with USAID Federal Regulations, including cost
share requirements, during AK F's Annual Statutory Single Audit. Please see Annex 4: AKF
Uniform Guidance Audit Report - FY 2018 - 2019 for more details.
AKF USA's accounting system allows for disaggregation of cost share reporting by grant to
ensure that cost share is not double counted across Federal grants. This is tested and
verified through AKF USA' s Annual Statutory Audit Process. Please see - Annex 4: AKF
Uniform Guidance Audit Report- FY 2018 - 2019 for more details.
The attached Annex 3: Certification from AKF's Regional CFO for North America on the
Origin of ACEP's Cost Share confirms that the funds committed to the AICS Sustainability
Fund have not been used as contributions for any other Federal Award.

Annex 3: Certification from AKF's Regional CFO for North America on the Origin of ACEP's
Cost Share
Annex 4: AKF Unif orm Guidance Audit Report- FY 2018 -2019

(4) Are allowable under Subpart E-Cost Principles of this part
The AICS Sustainability Platform is allowable, as it does not meet the criteria of any of the
unallowable costs included under 2 CFR 200 Subpart E.

The Sustainability Platform was approved as part of ACEP's Year 6 Annual Work Plan
(Annex 10) and incorporated into Modifications #9 (Annex 1) and #11 (Annex 11) of the
agreement between AKF USA and Counterpart International.
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Furthermore, AKF has established a robust governance structure to ensure the proper
stewardship of the AICS Sustainability platform . AICS and the Aga Khan Foundation
established an Interim Investment Committee to govern the use of the Funds dedicated
to the Sustainability Platform and to oversee the formation of a permanent Investment
Committee. The Interim Investment Committee's period of performance was from
September 1, 2018 to June 30, 2019. In June 2019, a permanent Investment Committee
was established. The purpose of the committee is to oversee and fulfill all necessary
governance functions for the Funds dedicated to the Sustainability Platform and to ensure
that the funds invested in the Sustainability Platform by AKF USA under ACEP are used
exclusively in support of AICS and not for any other purposes. The Investment Committee
agreed on bylaws dated 25 April 2020 that clarify the purpose of and govern the work of
the Investment Committee. The Committee has been meeting regularly since its
establishment.

An important goal of ACEP was to ensure the sustainability of AICS as an independent
Afghan institution. The purpose of the AICS Sustainabi lity Platform was to develop an
institutiona l asset base for AICS, which will enable diversified funding and reduce reliance
on international donor funds over the long term. As such, the establishment of the
Sustainability Platform as a fund was the main deliverable agreed to under ACEP; the fund
was never intended to procure specific goods and services, but to invest in the financial
sustainability of AICS. AKF's capitalization of the fund in December 2018 serves as its
cost share expenditure under the ACEP award. All expenses are approved by the
investment committee to ensure the proper stewardship of AICS Sustainability Platform
funds; expenditure of the Sustainability Platform funds themselves are outside of the
scope of the ACEP project.

Annex 1 - Modification #9 to the agreement between AKF USA and Counterpart
International {'We will develop a long-term sustainability plan, including development of
an institutional asset base through diversified funding to ensure from the outset a
strategy to incrementally reduce reliance on international donors.")
Annex 10: ACEP Year 6 approved Annual Work Plan (see page 37: "AICS's sustainability is
a major goal of ACEP. The cost-share funded one-time sustainability platform expenditure,
carried over from previous work plans, will take place before December 3, 2018,
representing the majority of remaining available AKF cost share funds.")
Annex 11: Modification #11 to the agreement between AKF USA and Counterpart
International, {see page 36: "The cost-share funded one-time sustainability platform
expenditure, carried over from previous work plans, will take place before December 3,
2018, representing the majority of remaining available cost share funds").

(5) Are not paid by the Federal Government under another Federal award, except where
the Federal statute authorizing a program specifically provides that Federal funds made


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                                                                            COUNTERPART                           :t!i!i
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       available for such program can be applied to matching or cost sharing requirements of
       other Federal programs;

       Please refer to Section (1) where it is documented that AKF's AICS cost share funding is
       sourced from individual contributions to AKF fundraising campaigns, and not from any
       Federal sources.

(2) Counterpart respectfully disagrees with this recommendation. Counterpart's financial
statements appropriately included this cost share, complied with GAAP, and received clean audit
opinions. Counterpart has established procedures in its Cost Share Manual to ensure that cost
share contributions are adequately documented. AKF' s Sustainability Platform is an innovative
cost share contribution providing for a local organization's long-term sustainability that extends
beyond the traditional reach of a project.

Counterpart periodically revises its policies and manuals to comply with changes in regulations,
incorporate best practices and lessons learned. The last Cost Share Manual update was October
2019. Based on this experience, Counterpart will incorporate lessons learned from non-
traditional cost share to ensure proper planning and guidance on types of supplementary
documentation into the next revision of its Cost Share Manua l and highlight cost share
monitoring in its Subrecipient Monitoring (SRM) guidance documents. Counterpart will also
provide refresher trainings to its staff on cost share and sub-recipient monitoring, and cost share
to its subrecipients .

Finding 2020-03: Misclassification of Expenses

Nature of Finding:
Internal control - significant deficiency Noncompliance

Condition:
We tested 28 out of 795 travel transactions totaling $133,859 out of $265,871 of total travel costs
incurred, and noted two transactions totaling $12,822 that related to printing of election
materia ls and a women's ACEP directory booklet that should have been reported under other
direct costs (ODC). These costs were otherwise allowable under the terms of the Agreement.
Counterpart provided documentation to show reclassification of the costs correctly. Therefore,
we did not report any questioned costs because all those costs were allowable by the agreement.

Cause:
Counterpart incorrectly coded the other direct costs as travel costs due to clerical error.

Criteria:
2 CFR 200.403, Factors affecting allowability of costs, states, in part:



                                                                          2345 Crystal Drive Suite 301, Artington, VA 22202
                                                                  T: 571 .447.5700 F: 703.412.5035 www.counterpart.org
                                                 13

                                                 38
                                                                                                  APPENDlr·         "-1•
                                                                             COUNTERPART                           :t.!.i.!.Y.
                                                                                      INTERNATIONAL                '!'l'l'I'!'
                                                                                                                      '!'111!9
"Except where otherwise authorized by statute, costs must meet the following genera l criteria in
order to be all owable under Federal awards:

(b) Conform to any limitations or exclusions set forth in these principles or in the
Federa l award as to types or amount of cost items ...

(e)   Be determined in accordance with generally accepted accounting principles
(GAAP) ..."

2 CFR 200.405, Allocab le costs, states, in part:

"(a) A cost is all ocable to a particular Federal award or other cost objective if the goods or services
involved are chargeable or assignable to that Federal award or cost objective in accordance with
relative benefits received ..."

Effect:
Misclassification of costs on the SPFS could result in unallowable or unallocable costs billed under
the Agreement. In addition, misclassifications could resu lt in amounts billed in excess of
Agreement budget amounts.

Questioned Costs:
There are no questioned costs associated with this finding because the costs have been
reclassified on the SPFS. After reclassification, the dollar amount of the individual line items are
within the budget.

Recommendation:
We recommend that Counterpart implement procedures to ensure that a supervisor is required
to rev iew the preparation of future SPFSs to ensure that individual costs are charged and
reported in accordance with the budget classifications per the award.

We recommend that training be provided to individuals responsible for coding transactions to
ensure that procedures are implemented correctly.

Counterpart Management Response:
Counterpart accepts the aud itors' finding but disagrees that th is is a significant deficiency. The
misclassification of costs was an oversight due to human error. There is no impact on the total
program costs. Counterpart has implemented the procedures that segregates the preparer,

reviewer and clearer, among other things, to review and approve the classification of
expenditures before the transactions are recorded in the accounting system . Based on this
experience, Counterpart wi ll incorporate lessons learned from this finding and ensure proper
classification of costs in accordance with the budget and cost principles outlined in 2CFR200
Subpart E. Counterpart will also provide refresher trainings to its Finance and Accounting teams.
                                                                           2345 Crystal Drive Suite 301, Artington, VA 22202
                                                                   T: 571 .447.5700 F: 703.412.5035 www.counterpart.org
                                                    14

                                                    39
                                                                                          APPENDIX B
                           COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                      Auditor’s Rebuttal to Counterpart’s Response to Findings

                     For the Period October 1, 2018 through February 15, 2020


Counterpart disagreed with all three findings. We have reviewed management’s response for its
disagreements and provide the following rebuttals.


Finding 2020-01: Costs Incurred Outside of SPFS Period

Counterpart disagreed with this finding indicating that the questioned costs were properly included
in the SPFS in accordance with 2 CFR 200.403, and recorded in accordance with GAAP and
Counterpart’s standard accounting practice and due diligence reviewing subgrantee costs in high-
risk environments. The SPFS was prepared for the period October 1, 2018 through February 15,
2020. Based upon its admission, Counterpart prepared the SPFS in accordance with GAAP as
required by 2 CFR 200.403, and on the accrual basis of accounting. The accrual basis of accounting
requires costs to be reported when incurred and not when paid. As each of the questioned
transactions were incurred prior to October 1, 2018, they should have been excluded from the costs
reported on the SPFS. Because the scope of this audit is only for the period October 1, 2018 through
February 15, 2020, we are unable to determine whether costs incurred prior to October 1, 2018 were
either included on previous Agreement audits or billed to USAID. As such, our finding remains
unchanged.


Finding 2020-02: Unsupported Cost Share

Counterpart disagreed with this finding indicating that it provided evidence throughout the period of
audit to support AKF’s cost share for the Agreement including the requested voucher, GL reference,
selection of investment manager, bank statement, transfer instructions and voucher and
Memorandum of Understanding for the permanent Investment Committee, with the last submission
on November 10, 2020 together with documentation. When auditing the cost share, we noted that
Counterpart had a cost share requirement of $2,389,495 included as part of its Agreement. We
noted that for the period of the SPFS, Counterpart reported cost share of $731,781. Of this amount,
$585,313 was incurred by AKF and included in our testing. Of this amount, AKF purchased a
certificate of deposit (CD) in the amount of $564,674. It is this CD that is the subject of this finding.
The CD was purchased on December 3, 2018 for a term of one year and matured on December 3,
2019. No documentation was provided by Counterpart or AKF to demonstrate that upon maturity of
the CD, what happened to the funds and what were they used for. Counterpart and AKF included
more than 180 pages of additional documentation with its management response that allegedly
supports that the CD was allowable.           However, we were unable to determine from this
documentation, or any documentation submitted during the course of the audit, how the funds
invested in the initial CD were ultimately used, whether these funds represented AKF’s funds for the
cost-share, or whether they were provided by another federal program. In the absence of evidence,
other than testimonial evidence, that the funds were expended for allowable goods or services, our
finding remains unchanged.




                                                  40
                                                                                          APPENDIX B
                            COUNTERPART INTERNATIONAL, INC.

                              Financial Audit of Costs Incurred Under
                          Cooperative Agreement No. AID-306-A-14-00001
                             Afghan Civic Engagement Program (ACEP)

                      Auditor’s Rebuttal to Counterpart’s Response to Findings

                                              (Continued)


Finding 2020-03: Misclassification of Expenses

Counterpart agrees with this finding, but disagrees with it being identified as a significant deficiency.
As the determination of the categorization of findings as deficiencies, significant deficiencies, or
material weaknesses is a matter of auditor professional judgment, our finding remains unchanged.




                                                  41
                                 The mission of the Special Inspector General for Afghanistan
            SIGAR's Mission      Reconstruction (SIGAR) is to enhance oversight of programs for the
                                 reconstruction of Afghanistan by conducting independent and
                                 obj ective audits, inspect ions, and investigations on the use of
                                 taxpayer dollars and related funds _SIGAR works to provide accurate
                                 and balanced information . evaluations. analysis. and
                                 recommendat ions to help the u_s_ congress. u_s_ agencies. and
                                 other decision-makers to make informed oversight, policy, and
                                 funding decisions to:

                                          •   improve effectiveness of the overall reconst ruction
                                              strategy and its component programs;
                                          •   improve management and accountability over funds
                                              administered by u_s_ and Afghan agencies and their
                                              contractors;
                                          •   improve contracting and contract management
                                              processes;
                                          •   prevent fraud , waste. and abuse; and
                                          •   advance     u_s_ interests in reconstructing Afghanistan _


  Obtaini ng Copies of SIGAR     To obtain copies of SIGAR documents at no cost, go to SIGAR's Web
                                 site (www_sigar_mil)_ SIGAR posts all publicly released reports,
   Reports and Testimon ies      test imonies, and correspondence on its Web site_




                                 To help prevent fraud , waste, and abuse by reporting allegatiOns of
To Report Fraud , Waste, and     fraud , wast e, abuse, mismanagement, and reprisal , contact SIGAR's
      Abuse in Afgha nistan      hotline:
   Reconstruction Programs                •   Web: www _sigar_mil/fraud
                                          •   Email: sigar_pent agon_inv_mbx_hotline@maiLmil
                                          •   Phone Afghanistan: +93 (0) 700-10-7300
                                          •   Phone DSN Afghanistan: 318-237-3912 ext_ 7303
                                          •   Phone International: +1-866-329-8893
                                          •   Phone DSN International: 312-664-03 78
                                          •   u_s_ fax: +1-703-601-4065



                                 Public Affairs Officer
               Public Affai rs
                                          •   Phone: 703-545-597 4
                                          •   Email: sigar_pentagon_ccr_mbx_public-affairs@maiLrnil
                                          •   Mail: SIGAR Public Affairs
                                              2530 Crystal Drive
                                              Arlington . VA 22202