This final report is intended solely for the information and use of the U.S. Department of Labor, Bureau of International Labor Affairs and World Vision, Inc. and is not intended to be distributed to or used by anyone other than these specified parties.

Submitted By Williams, Adley and Company, LL

Examination of Cooperative Agreement E-9-K-3-0055 Williams, Adley & Company LLP

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Examination of Cooperative Agreement E-9-K-3-0055 Williams, Adley & Company LLP

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Examination of Cooperative Agreement E-9-K-3-0055 Williams, Adley & Company LLP

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We conducted an independent examination of the World Vision, Combating Child Labor Through Education in the Philippines, ABK Initiative under cooperative agreement E-9K-3-0055 for the period September 1, 2003 to March 31, 2005. Our examination was performed in accordance with Generally Accepted Government Auditing Standards (GAGAS) and requirements established under the Code of Federal Regulations (CFR), Title 29; Part 95 and, accordingly, included examining, on a test basis, evidence about World Vision’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. Our test work was divided into several broad areas for examination purposes. These areas included the following: 1. 2. 3. 4. 5. 6. 7. 8. Administrative Procedures Fraud Risk Assessment Cash Management Inventory Management Performance Data, Measures and Goals Budget Plans and Revisions Compliance Requirements Disbursements

We traveled over 2,700 miles throughout south, western and southwestern Philippines to assess program attributes, challenges and results. We visited seven (7) school sites, met with students, project staff and school instructors to gather information and determine the program’s impact and project status.We also met with the 2nd Secretary (political) of the United States Embassy, in Manila, Philippines to brief him on our objectives, the overall scope of work and timeframe for completion of our fieldwork. We conducted procedures to express an opinion on management’s assertions that World Vision Combating Child Labor Through Education in the Philippines-ABK Initiative complied with the terms and conditions of its cooperative agreement E-9-K-3-0055 and 29 CFR, Part 95, and that financial reports and performance data reported to USDOL during the period September 1, 2003 through March 31, 2005 were accurate and reliable. We noted findings that management must address in order to ensure the project’s continued success. The findings are based on our assessment of the risks to the project, use of funds, reporting accuracy, timeliness, support and procedural compliance. Findings, questioned costs and recommendations are highlighted in this executive summary along with a brief description of our overall assessment. In our opinion, World Vision complies, in all material respects, with the aforementioned requirements for the period September 1, 2003 to March 31, 2005, except for the significant conditions described in this report. Examination of Cooperative Agreement E-9-K-3-0055 Williams, Adley & Company LLP 03/15/06 iv

SUMMARY OF FINDINGS AND QUESTIONED COSTS World Vision’s ABK Initiative program is designed to reduce child labor in six target regions, spanning the eight provinces of Bulacan, Camarines Norte, Iloilo, Negros Occidental, Negros Oriental, Cebu, Davao and Metro Manila. World Vision, Inc. has a decentralized organizational structure. The ABK Initiative program is managed and controlled from its field office in Quezon City, Philippines. World Vision, Inc. has an internal audit team to conduct audits of all its programs, including ABK Initiative, to ensure compliance with both internal and USDOL requirements. We found that advances to World Vision’s partner organizations are paid from World Vision funds, and any funds and reimbursements requested from USDOL are made after all supporting documentation has been received and reviewed. We did not note any conditions that resulted in a statement of findings or questioned costs in terms of the administrative capacity, organizational structure, internal system controls or outstanding prior audit findings. We also did not note any findings related to cash management or inventory management. Significant or reportable findings related to the other audit sections are summarized below: Finding 1 - Budget Plan: Utilization of budgeted funds (SIGNIFICANT FINDING): World Vision has expended only 4.1% of the total budget and 6.0% of USDOL funded budget through February 2005. The ABK Initiative program did not start until May 2004, approximately seven months later than the planned start date due to the late receipt of a complete and accurate baseline study. The late start date resulted in program expenditures being far less than originally budgeted. Consequently, it is likely that the grant award will not be fully utilized over the remaining grant period. In addition, we noted that actual versus budgeted expenditures were underreported because World Vision’s partner, PLAN, had not reported or submitted any reimbursement requests for approximately $32,182 through March 10, 2005. Finding 2 – Compliance: In-kind contributions (SIGNIFICANT FINDING): World Vision did not establish a process for recording all in-kind contributions and did not meet in-kind contributions as required by the cooperative agreement. For the first operating year, the original budget included in-kind contributions comprised primarily of personnel, travel, equipment and professional services to be provided by World Vision, Christian Children’s Fund, Education Research Development Assistance and PLAN. During the first two years of the project, in-kind contributions should have been a prorata amount of $856,532 for the first 17 months. However, as of February 2005, only $15,764, or less than 1% of that amount, had been reported. The in-kind contribution report by World Vision showed $10,881, and Christian Children’s Fund in-kind Examination of Cooperative Agreement E-9-K-3-0055 Williams, Adley & Company LLP 03/15/06 v

contribution was $4,884, representing personnel costs. We also noted that personnel funded by World Vision’s general fund were working for ABK Initiative program and, as such, were an in-kind contribution; however, they were not reported as such.

Finding 3 – Compliance: Partner Organizations We noted that Christian Children’s Fund, Educational Research and Development Assistance Foundation and PLAN were identified as partners in the project proposal submitted by the grantee but, at the time the cooperative agreement was finalized, USDOL did not require that partners sign the cooperative agreement and accept responsibility for achieving the performance indicators and complying with USDOL regulations and the provisions of the cooperative agreement. Finding 4 - Performance: Monitoring supported children Although we did not note any attendance discrepancies at six of the seven schools visited, school attendance was not accurately recorded on a daily basis in the official logs that the teachers maintained at the school in the municipality of Bogo, Cebu. The electronics class attendance sheet showed 19; our head count was 10. We were told that nine students were out shopping for supplies. The attendance sheet at the driving class showed 22 enrollees; our head count was 20, the vocational teacher was not in the classroom and we were unable to locate the two missing children. Finding 5 – Performance: Program management We observed that children learning electronics lacked basic supplies essential to their class, such as computer and printer cables. We attribute this shortage to poor program planning or cash management because PLAN has expended only a fraction of its budget according to a World Vision audit and has yet to request reimbursement for those expenditures and, it has not reported any in-kind or matching fund expenditures. Finding 6 – Disbursements: Disbursement transactions support (QUESTIONED COST) Three transactions for travel, petty cash and office supplies did not have adequate support. The total amount of unsupported costs was $167.89 (questioned costs). We propose the following recommendations to correct the findings noted above: Finding 1: Utilization of budgeted funds • We recommend that World Vision and its partners implement the necessary steps to improve budget utilization. • We recommend that World Vision clearly communicate to its partners the importance of submitting reimbursement requests in a timely manner to ensure programs are adequately funded so that at-risk children are afforded the full complement of services to enhance their educational experience. Examination of Cooperative Agreement E-9-K-3-0055 Williams, Adley & Company LLP 03/15/06 vi

We recommend that USDOL review the approved budget and determine whether funds in excess of the projected usage should be reallocated to other projects or allow the project to be extended for a defined period of time to compensate for the delayed implementation using a no-cost contract modification.

Finding 2: In-kind contributions • We recommend that World Vision and its partners develop reporting procedures and establish a monitoring process to ensure that all appropriate in-kind contributions are identified, recorded and reported. • We recommend that World Vision accelerate efforts to meet the contribution requirements as required in the cooperative agreement. Finding 3: Partner Organizations • We recommend that USDOL negotiate with World Vision in an effort to secure the implementing partners as signatories to the agreement, accepting responsibility for achieving the purpose of the award and complying with all applicable regulations and cooperative agreement provisions. Finding 4: Monitoring supported children • We recommend that World Vision ensure that the daily recording of attendance is accurate and that vocational school teachers are informed of and agree to their responsibilities as custodians of the supported children entrusted to their care. • We recommend that World Vision verify children’s attendance and determine the cause for and correct any deficiencies in attendance. Finding 5: Program management • We recommend that World Vision ensure that supplies are ordered and purchased by authorized grantee, subcontractor or school officials in a manner that does not disrupt or detract from the children’s lessons. • We also recommend that the subcontractor submit expenditure documentation so that matching contributions for the project may be properly confirmed and recorded in a timely manner. Finding 6: Disbursement transactions support • We recommend that World Vision institute procedures to review all disbursement transactions to ensure adequate support documentation as required by USDOL. • We recommend that World Vision reimburse USDOL for all unsupported questioned costs. We wish to acknowledge the exceptional assistance and extensive cooperation provided by World Vision and its project staff in our performance of the fieldwork, coordinating site visits and responding to our inquiries. The work could not have been completed without their full participation and support.

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