U NITED States federal auditors have uncovered $138,000 in questionable costs incurred

by the Vietnam Veterans of America Foundation in Cambodia under a USAID grant.

The auditor's report, which calls for a tightening of VVAF internal procedures, criticizes

USAID for not doing a preliminary survey before deciding to grant funding to VVAF.

The report, dated Oct 3, questions severance pay, construction, travel and communication

expenses charged to USAID.

VVAF has agreed to reimburse $34,000 billed to USAID, but maintains the remaining

costs should still be paid by USAID.

The audit, by the Inspector General's Office of USAID (the US Agency for International

Development), was ordered earlier this year after former VVAF staff allged theft

or misuse of USAID money.

VVAF - which runs the high-profile Kien Khleang wheelchair and artificial limb factory

near Phnom Penh - operates under a four-year $4.5 million USAID grant.

The auditor's report makes no mention of theft but questions a total of $138,598

of costs incurred by VVAF under the grant.

They consisted of:

• $82,558 in severance and contract termination payments to former staff which

  "were not provided for in VVAF's employment agreements and, in our opinion,

  do not appear reasonable."

• Communication costs of $34,141 (out of a total of $86,143 billed to USAID) which

  were "not allocable to USAID's grant". This amount, which VVAF had agreed

  to pay, included the cost of personal telephone calls.

• Travel expenses of $11,268 which were not adequately documented.
• $8,131 in inadequately documented construction expenses for the Kien Khleang

  facility (which was found to have cost $188,000 more than its original budget).

• Double-billing of an employee's salary of $2,500 after the original pay was stolen

  from VVAF's safe.

The auditors recommended that all the costs be reviewed by USAID to determine

whether they were permitted under its grant, and to recover any which were not.

US Embassy spokesman Frank Huffman said this week that USAID had not yet made any

final decisions on the disputed costs.

VVAF (now renamed Veterans International) had made an application for further USAID

funding, which was under review, he said.

Veterans International program director Larrie Warren said the audit report was "as

favorable as we could have hoped for".

"The amount [of questioned costs] was not out of the ordinary for a full financial

audit, which is why we are, I wouldn't say pleased, but satisfied, with the outcome.

"...the amount is such that if we lose our basis for saying those costs were

legitimate [and VVAF has to repay them], we won't go under."

Action was being taken to respond to "weak areas" highlighted by the audit,

Warren said.

The audit report also found:

• A total of $15,856 in cash advances to a former project director - unpaid at

  the time of his departure from VVAF - had not been charged to USAID.

• No evidence that personal expenses charged to VVAF credit cards were billed to

  USAID, but "the potential exists for this to occur" because of "lax"

  VVAF controls. At the time of audit, personal expenses charged to VVAF credit cards

  by two former employees had not been repaid for more than a year.

• A "systemic weakness" in VVAF's procedures for procuring equipment

  and supplies, with inadequate documentation of the review and approval of purchases.

The auditors found that the construction of Kien Khleang cost a total of $292,797,

compared to its initial $105,000 budget.

Some 24 percent of the total cost had been listed under other expenses.

"We found no indication that VVAF notified USAID of the $188,000 spent in excess

of the planned amount of $105,000.

"According to VVAF officials, they were not required under the grant to formally

notify USAID or obtain approval for the increased cost of the building,"the

report said.

The auditors noted that, before making its grant to VVAF, "USAID elected not

to conduct a pre-award survey to determine the grantee's capacity to perform technically

and financially."

USAID initially allowed VVAF great leeway by permitting 100 percent budget line flexibility

- allowing money designated for one purpose to be used for another.

While this was later amended, VVAF maintained that USAID officials gave assurances

that such flexibility continued.

The "confusion" surrounding the initial provision, and the "considerable

latitude" given to VVAF to adjust its budget, "limited USAID's ability

to effectively monitor the funds for construction."

The decision not to survey VVAF before the grant was given had "created a higher

level of risk that USAID funds would be used inefficiently."

The audit did not include all expenses billed to VVAF under the grant, except for

all the severance and communication costs.

Of the other expenses, the auditors said they selected a sample of bills to examine.

For example, of the total construction expenses of $292,797, a sample of transactions

totaling $45,842 were audited. Of those, $8,131 was found to be inadequately documented.

About 36 per cent of travel expenses were audited (finding $11,268 of them were not

documented properly), and about 9 per cent of credit card bills.

Finally, the audit noted that the USAID grant was a "cost-sharing" one

- with both USAID and VVAF contributing funds.

VVAF was obliged to contribute $1.6 million of the total $4.5 million grant, either

in cash or by deducting the value of goods or services privately donated to it.

By the time of the audit, VVAF should have provided $1.3 million of its total contribution,

but had contributed only $897,000.

The shortfall of $406,000 was increased to $500,197 after it was found that, due

to a "misunderstanding", VVAF had overvalued housing units donated to it

by $93,750.

The auditors also said that other reported donations given to VVAF appeared "questionable",

either because they appeared unrelated to the USAID grant or they were poorly documented.

In a letter attached to the audit report, VVAF's US-based Executive Director Robert

Muller pledged that its oustanding contributions would be paid within two months.

Of the $138,598 of VVAF costs billed to USAID which were questioned by the auditors,

Muller maintained that only the communication costs of $34,000 were not allowed to

be charged to USAID.

He was confident that all the other costs would be met by USAID.

Muller said VVAF had drawn up new comprehensive policies on severance payments, corporate

credit card use and other areas referred to by the auditors.

Noting that USAID's grant money had allowed VVAF to provide more than 4,000 artificial

limbs and 2,000 wheelchairs to disabled Cambodians, Muller said VVAF was "fully

committed to the continued development and preservation of this program and confident

in its ability to serve Cambodia in the future."