Submitted By Williams, Adley and Company, LLP March 20, 2006 This report is intended solely for the information and use of the U.S. Department of Labor, Bureau of International Labor Affairs and Partners of the Americas and is not intended to be distributed to or used by anyone other than these specified parties.


EXECUTIVE SUMMARY We conducted an independent examination of the Partners of the Americas’ Education Initiative project in Recife, Brazil under cooperative agreement E-9-K-3-0060 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 Partners of the Americas’ 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 Performance Data, Measures and Goals Disbursements Cash Management Budget Plans and Revisions Compliance Requirements Inventory Management

We traveled throughout Brazil to observe, inquire about and assess program attributes, challenges and results. We visited several school sites, met with students, parents and parent committees, teachers, government building technicians/inspectors and school administrators and contractors to gather information on and determine the program’s impact and project status. We conducted tests to express an opinion on management’s assertions that Partners of the Americas (POA) complied with the terms and conditions of its Education Initiative project in Recife, Brazil under cooperative agreement E-9-K-3-0060 and 29 CFR, Part 95 and that financial reports and reported performance data are accurate and reliable during the period September 1, 2003 through March 31, 2005. We observed that POA had established a presence in the Brazilian states of Pernambuco, Paraíba and Bahia and relationships in at least seven municipalities within those states to promote child education and awareness of child labor in illicit activities. POA also provided training for 1,043 teachers in the school system through February 2005. Finally, we noted that POA identified 2,033 children at-risk of the worst forms of child labor and commenced efforts to reduce that risk. We also noted, however, findings that management must address in order to ensure the project’s continued success. The findings are based on our assessment of the risk to the

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project, use of funds, reporting accuracy, timeliness and 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, POA complies, in all material respects, with the aforementioned requirements for the period September 1, 2003 through March 31, 2005. Summary of Findings Finding 1: Performance Goals We noted that the project was behind its targeted numbers for performance indicators. For example, the percentage of teachers trained of the approximately 5,000 targeted was expected to be at 30 percent as of February 2005. The actual number that received training was 1,043 or 21 percent. The number of municipalities receiving educational awareness information was targeted at 12 as of the February 2005 reporting period. The actual number was seven. The project had not begun reporting on the performance indicators of enrollment, retention and completion as of the end of the audit period (March 2005). Finding 2: Payroll processing and approvals We noted the following issues related to the project’s payroll records: Personnel Files did not consistently contain contracts: The personnel files for 3 of the 10 employees tested did not include employment contracts outlining the details of the terms of employment, benefits and salary for each employee. Payroll timesheets are not signed by the immediate supervisor: None of the 10 employee timesheets tested had the signature of their immediate supervisor. Although the timesheet had a space allocated for supervisory approval, the field office employees had not been obtaining that signature prior to submission of time sheets. Finding 3: Cash draw downs We determined that the grantee drew down and maintained cash balances in excess of its immediate needs, which is defined under U.S. government regulations as cash required for no more than 30 days. We noted that from the period April 2004 to March 2005 the grantee had maintained excess cash balances totaling $100,023.12 for more than 30 days resulting in accrued interest charges of $368.76. Finding 4: Budget line item variance We noted that as of March 31, 2005, the budget for operating costs had been exceeded by $32,180.00, including costs for rent, utilities, office supplies, communications and Examination of Cooperative Agreement E-9-K-3-0060 Williams, Adley & Company LLP 3/20/06 iii

furniture and equipment. The original budget for these items was set at $33,025. POA was aware of the budget overage, but had not prepared and submitted a budget revision as of the end of the fieldwork. Finding 5: Partner Organizations We noted that SERTA and Projeto Axe were identified as partners in the project proposal submitted by the grantee and performed services normally associated with grantees 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 6: Property insurance We noted that equipment purchased with USDOL funds was not properly insured as required. Finding 7: Maintenance of inventory records Property and equipment records were not in compliance with federal regulations: We obtained a listing of property that was incomplete. The listing did not contain complete serial numbers and the quantity of items maintained. Recommendations We have made the following recommendations in consideration of the findings noted above: Finding 1 Performance Goals We recommend that the grantee make every effort to accelerate training and information distribution activities to compensate for the delayed implementation and to increase the probability of successfully achieving the targeted goals and removing children from the worst forms of child labor within the project period. Finding 2 Payroll processing and approvals We recommend that the grantee ensure that USDOL funded hours are documented and approved by a responsible POA official for all compensated hours worked. In addition, the grantee should ensure that appropriate payroll documentation is maintained in each employee’s file and review its personnel procedures with staff, provide appropriate supplemental training and enforce the POA accounting manual procedures for documenting the hiring, payroll and salary adjustment actions taken with regard to its employees.

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Finding 3 Cash drawdowns We recommend that the grantee reimburse the U.S. Treasury for all calculated interest on the excess funds greater than the $250 per year allowed. We also recommend that the grantee modify its procedures to comply with the requirements of the cooperative agreement and USDOL regulations concerning the drawdown of funds. Finding 4 Budget line item variance We recommend that POA comply with budgetary revision requirements by submitting an appropriate budget revision request to cover the shortfall in the operating cost budget line item. We also recommend that POA adhere to its internal budget review process to avoid future budget line item cost overruns without prior USDOL approval. Finding 5 Partner Organizations We recommend that USDOL negotiate with POA with the objective of modifying the cooperative agreement to include the partner organizations as signatories to the agreement accepting responsibility for achieving the purpose of the award and complying with all applicable regulations and cooperative agreement provisions. Alternatively, POA must ensure that its sub-agreements contain all the elements that are definitive of subcontracts and the partner organizations are, in fact, subcontractors. Finding 6 Property insurance We recommend that the grantee obtain insurance on the property in its possession as required by the terms and conditions of its cooperative agreement. Finding 7 Maintenance of inventory records We recommend that the inventory records be updated to accurately include all the required information such as description, acquisition unit cost, acquisition date, item location and condition, and serial number, model number or other identification number for the item. We also recommend that written procedures be reviewed with staff to provide the proper guidance and instructions for compliance with the federal requirements for inventory record keeping and property safeguarding. We wish to acknowledge the exceptional assistance and extensive cooperation provided by Partners of the Americas and its project staff in providing fieldwork documentation, confirming logistics and translating discussions with the local population. The work could not have been completed without their full participation and support.

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