How to Reconcile Finances for Terminated USAID Projects

How to Reconcile Finances for Terminated USAID Projects

Advisory

Introduction

The termination of USAID-funded projects in Kenya requires meticulous financial reconciliation to ensure compliance with donor regulations and local laws. NGOs must systematically close their accounts, settle outstanding obligations, and submit final reports. Failure to reconcile finances properly can result in financial penalties, loss of future funding opportunities, and reputational damage. This guide outlines the key steps involved in financial reconciliation for terminated USAID projects.

Understanding USAID Financial Closeout Requirements

USAID has strict financial closeout procedures for terminated projects. These include:

  1. Final Financial Reporting – Organizations must prepare and submit a final financial report detailing expenditures, commitments, and remaining funds.
  2. Settling Outstanding Obligations – All vendor payments, employee salaries, taxes, and other financial liabilities must be cleared.
  3. Asset Disposition – Any remaining project assets must be properly transferred or disposed of according to USAID regulations.
  4. Compliance with Audits – NGOs must ensure financial records are audit-ready and meet USAID’s documentation standards.

Step-by-Step Financial Reconciliation Process

1. Review the Grant Agreement and Closeout Guidelines

NGOs should revisit their grant agreements and USAID’s closeout guidelines to ensure full compliance. Important aspects to consider include:

  • Final expenditure deadlines
  • Approved budget categories
  • Reporting formats
  • Allowable and unallowable costs

2. Conduct a Final Financial Audit

A thorough internal audit helps identify discrepancies and ensures that all financial data is accurate. The key elements to check include:

  • Unsettled payables and receivables
  • Bank reconciliations
  • Payroll obligations
  • Compliance with USAID cost principles

3. Reconcile All Bank Accounts

NGOs must ensure that all project-related bank accounts are reconciled before closure. Steps include:

  • Matching bank statements with project financial records
  • Identifying and resolving any outstanding transactions
  • Closing redundant accounts

4. Settle Outstanding Liabilities

Before closing a USAID project, all financial obligations must be cleared. This includes:

  • Vendor and contractor payments
  • Staff redundancy payments (in compliance with Kenya’s labour laws)
  • Pending tax remittances (PAYE, VAT, NHIF, NSSF)
  • Lease and utility payments

5. Prepare and Submit Final Reports

USAID requires detailed financial reports at project closeout. NGOs should:

  • Provide a summary of total project expenditures
  • Justify any budget variances
  • Submit receipts, invoices, and other supporting documents
  • Ensure reports are in the required format

6. Manage Asset Disposition

NGOs must account for all project assets, including:

  • Vehicles, equipment, and furniture
  • Digital assets and intellectual property
  • Unused inventory or supplies

Disposal methods may include transfer to another USAID project, donation to a local organization, or sale with proceeds returned to USAID.

7. Handle Foreign Tax Reporting

USAID mandates reporting on foreign taxes paid using USAID funds. NGOs must:

  • Submit a final tax report detailing VAT and other levies
  • Apply for tax refunds where applicable

8. Conduct a Final External Audit

A USAID-approved auditor may be required to conduct a final audit to verify financial compliance. NGOs should:

  • Ensure all documentation is available
  • Address any audit findings promptly
  • Keep financial records for the required retention period

Best Practices for Smooth Financial Reconciliation

  • Start Early – Begin financial closeout preparations as soon as termination is announced.
  • Maintain Clear Documentation – Ensure all transactions have proper supporting documents.
  • Engage Financial Experts – Work with accountants and auditors experienced in USAID compliance.
  • Communicate with Stakeholders – Keep donors, staff, and vendors informed throughout the process.

Conclusion

Financial reconciliation for terminated USAID projects requires diligence, transparency, and compliance with donor and Kenyan regulatory requirements. By following a structured approach, NGOs can ensure a seamless closeout process, maintain donor trust, and position themselves for future funding opportunities.

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