Foreign Assistance

In December 1998, the United States responded to a Russian request for food aid. To ensure that the objectives of the food aid program were met, the Foreign Agricultural Service implemented internal controls to track the distribution and use of the food. GAO found that the Foreign Agricultural Service internal controls were inadequate and, as a result, the Service was unable to ensure that the food aid was delivered in the agreed upon amounts to designated regions. Several factors contributed to the weak monitoring system, including the Russian government's untimely reporting of commodity distribution and the Service's ineffective commodity tracking systems. Furthermore, the Service could not guarantee that funds derived from the sale of U.S. food aid were properly collected and deposited in the Russian Pension Fund.

GAO noted that: (1) the Foreign Agricultural Service did not adequately implement internal controls designed to direct, track, and verify how food aid was delivered at the regional level in Russia; (2) as a result, the Foreign Agricultural Service cannot provide reasonable assurance that the food aid was delivered in agreed upon amounts to the intended regions as was designated in commodity distribution plans approved by both governments; (3) GAO found that for most of the commodity distribution plans, less than one-quarter of the targeted regions received a tonnage amount that was equivalent to or near their planned allotment; (4) the lack of timely reporting on commodity distribution by the Russian government combined with weaknesses in the Foreign Agricultural Service's tracking systems for monitoring commodity deliveries to regional recipients limited the agency's ability to effectively manage the distribution process, identify discrepancies, and minimize the potential for fraud and abuse; (5) officials from the Foreign Agricultural Service told GAO that their ability to effectively implement internal controls was constrained by limited staff resources and the need to implement a large and complex program in a short time period; (6) the Foreign Agricultural Service did not establish adequate procedures to monitor the collection and deposit of funds derived from the sale of fiscal year 1999 U.S. food aid commodities in the Russian regions; (7) the procedures were also inadequate for minimizing the risk of unintended commodity diversions and shortfalls in deposits to the Russian Pension Fund; (8) officials from the Foreign Agricultural Service established and followed a formal procedure for setting commodity prices for food aid sold in Russia, but they did not adequately document their analysis or the basis for how the final price decisions were reached; (9) the prices set were used to calculate the amount to be deposited into the Russian Pension Fund for a given commodity shipment; (10) the U.S. and Russian governments attempted to set commodity prices at a "golden middle" that would facilitate the quick sale of food aid commodities and help to counteract inflationary pressures but would not disrupt local markets; and (11) without documentation of market conditions when making price-related decisions, the Foreign Agricultural Service was unable to demonstrate the reasonableness of final food aid commodity prices, which in turn determines the amount of funds deposited into the Russian Pension Fund.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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