Afghanistan
Actions Needed to Improve Accountability of U.S. Assistance to Afghanistan Government Gao ID: GAO-11-710 July 20, 2011The U.S. Agency for International Development (USAID) and the Department of Defense (DOD) award direct assistance to Afghanistan, using bilateral agreements and multilateral trust funds that provide funds through the Afghan national budget. GAO assessed (1) the extent to which the United States, through USAID and DOD, has increased direct assistance, (2) USAID and DOD steps to ensure accountability for bilateral direct assistance, and (3) USAID and DOD steps to ensure accountability for direct assistance via multilateral trust funds for Afghanistan. GAO reviewed USAID, DOD, and multilateral documents and met with U.S. officials and staffs of multilateral trust funds in Washington, D.C., and Afghanistan.
The United States more than tripled its awards of direct assistance to Afghanistan in fiscal year 2010 compared with fiscal year 2009. USAID awards of direct assistance grew from over $470 million in fiscal year 2009 to over $1.4 billion in fiscal year 2010. USAID awarded $1.3 billion to the World Bank-administered Afghanistan Reconstruction Trust Fund (ARTF) in fiscal year 2010, of which the bank has received $265 million as of July 2011. DOD direct assistance to two ministries grew from about $195 million in fiscal year 2009 to about $576 million in fiscal year 2010, including contributions to fund police salaries through the United Nations Development Program-administered (UNDP) Law and Order Trust Fund for Afghanistan (LOTFA). USAID and DOD have taken steps to help ensure the accountability of their bilateral direct assistance to Afghan ministries, but USAID has not required risk assessments in all cases before awarding these funds. For example, USAID did not complete preaward risk assessments in two of the eight cases GAO identified. Although current USAID policy does not require preaward risk assessments in all cases, these two awards were made after the USAID Administrator's July 2010 commitment to Congress that USAID would not proceed with direct assistance to an Afghan public institution before assessing its capabilities. In these two cases, USAID awarded $46 million to institutions whose financial management capacity were later assessed as "high risk." USAID has established various financial and other controls in its bilateral direct assistance agreements, such as requiring separate bank accounts and audits of the funds. USAID has generally complied with these controls, but GAO identified instances in which it did not. For example, in only 3 of 19 cases did USAID document that it had approved one ministry's prefinancing contract documents. DOD personnel in Afghanistan assess the risk of providing funds to two security ministries through quarterly reviews of each ministry's capacity. DOD officials also review records of ministry expenditures to assess whether ministries have used funds as intended. DOD established formal risk assessment procedures in June 2011, following GAO discussions with DOD about initial findings. USAID and DOD generally rely on the World Bank and UNDP to ensure accountability over U.S. direct assistance provided multilaterally through ARTF and LOTFA, but USAID has not consistently complied with its risk assessment policies in awarding funds to ARTF. During GAO's review, DOD established procedures in June 2011 requiring that it assess risks before contributing funds to LOTFA. The World Bank and UNDP use ARTF and LOTFA monitoring agents to help ensure that ministries use contributions as intended. However, security conditions and weaknesses in Afghan ministries pose challenges to their oversight. For example, the ARTF monitoring agent recently resigned due to security concerns. The World Bank is now seeking a new monitoring agent and does not anticipate a gap in monitoring. In addition, weaknesses in the Ministry of Interior's systems for paying wages to police challenge UNDP efforts to ensure that the ministry is using LOTFA funds as intended. GAO recommends that USAID (1) establish and implement policy requiring risk assessments in all cases before awarding bilateral direct assistance funds, (2) take additional steps to help ensure it implements controls for bilateral direct assistance, and (3) ensure adherence to its risk assessment policies for ARTF. In commenting on the first recommendation, USAID stated that its existing policies call for some form of risk assessment for all awards and that it has taken new steps to ensure risk assessment. GAO retained its recommendation because existing USAID policies do not require preaward risk assessments in all cases. USAID concurred with GAO's other recommendations.
RecommendationsOur 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.
Director: Charles M. Johnson Jr Team: Government Accountability Office: International Affairs and Trade Phone: (202) 512-7331GAO-11-710, Afghanistan: Actions Needed to Improve Accountability of U.S. Assistance to Afghanistan Government
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United States Government Accountability Office:
GAO:
Report to Congressional Addressees:
July 2011:
Afghanistan:
Actions Needed to Improve Accountability of U.S. Assistance to
Afghanistan Government:
GAO-11-710:
GAO Highlights:
Highlights of GAO-11-710, a report to congressional addressees.
Why GAO Did This Study:
The U.S. Agency for International Development (USAID) and the
Department of Defense (DOD) award direct assistance to Afghanistan,
using bilateral agreements and multilateral trust funds that provide
funds through the Afghan national budget. GAO assessed (1) the extent
to which the United States, through USAID and DOD, has increased
direct assistance, (2) USAID and DOD steps to ensure accountability
for bilateral direct assistance, and (3) USAID and DOD steps to ensure
accountability for direct assistance via multilateral trust funds for
Afghanistan. GAO reviewed USAID, DOD, and multilateral documents and
met with U.S. officials and staffs of multilateral trust funds in
Washington, D.C., and Afghanistan.
What GAO Found:
The United States more than tripled its awards of direct assistance to
Afghanistan in fiscal year 2010 compared with fiscal year 2009. USAID
awards of direct assistance grew from over $470 million in fiscal year
2009 to over $1.4 billion in fiscal year 2010. USAID awarded $1.3
billion to the World Bank-administered Afghanistan Reconstruction
Trust Fund (ARTF) in fiscal year 2010, of which the bank has received
$265 million as of July 2011. DOD direct assistance to two ministries
grew from about $195 million in fiscal year 2009 to about $576 million
in fiscal year 2010, including contributions to fund police salaries
through the United Nations Development Program-administered (UNDP) Law
and Order Trust Fund for Afghanistan (LOTFA).
USAID and DOD have taken steps to help ensure the accountability of
their bilateral direct assistance to Afghan ministries, but USAID has
not required risk assessments in all cases before awarding these
funds. For example, USAID did not complete preaward risk assessments
in two of the eight cases GAO identified. Although current USAID
policy does not require preaward risk assessments in all cases, these
two awards were made after the USAID Administrator‘s July 2010
commitment to Congress that USAID would not proceed with direct
assistance to an Afghan public institution before assessing its
capabilities. In these two cases, USAID awarded $46 million to
institutions whose financial management capacity were later assessed
as ’high risk.“ USAID has established various financial and other
controls in its bilateral direct assistance agreements, such as
requiring separate bank accounts and audits of the funds. USAID has
generally complied with these controls, but GAO identified instances
in which it did not. For example, in only 3 of 19 cases did USAID
document that it had approved one ministry‘s prefinancing contract
documents. DOD personnel in Afghanistan assess the risk of providing
funds to two security ministries through quarterly reviews of each
ministry‘s capacity. DOD officials also review records of ministry
expenditures to assess whether ministries have used funds as intended.
DOD established formal risk assessment procedures in June 2011,
following GAO discussions with DOD about initial findings.
USAID and DOD generally rely on the World Bank and UNDP to ensure
accountability over U.S. direct assistance provided multilaterally
through ARTF and LOTFA, but USAID has not consistently complied with
its risk assessment policies in awarding funds to ARTF. For example,
in March 2010, USAID did not conduct a risk assessment before awarding
an additional $1.3 billion to ARTF. During GAO‘s review, DOD
established procedures in June 2011 requiring that it assess risks
before contributing funds to LOTFA. The World Bank and UNDP use ARTF
and LOTFA monitoring agents to help ensure that ministries use
contributions as intended. However, security conditions and weaknesses
in Afghan ministries pose challenges to their oversight. For example,
the ARTF monitoring agent recently resigned due to security concerns.
The World Bank is now seeking a new monitoring agent and does not
anticipate a gap in monitoring. In addition, weaknesses in the
Ministry of Interior‘s systems for paying wages to police challenge
UNDP efforts to ensure that the ministry is using LOTFA funds as
intended.
What GAO Recommends:
GAO recommends that USAID (1) establish and implement policy requiring
risk assessments in all cases before awarding bilateral direct
assistance funds, (2) take additional steps to help ensure it
implements controls for bilateral direct assistance, and (3) ensure
adherence to its risk assessment policies for ARTF. In commenting on
the first recommendation, USAID stated that its existing policies call
for some form of risk assessment for all awards and that it has taken
new steps to ensure risk assessment. GAO retained its recommendation
because existing USAID policies do not require preaward risk
assessments in all cases. USAID concurred with GAO‘s other
recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-11-710] or key
components. For more information, contact Charles M. Johnson Jr. at
(202) 512-7331 or johnsoncm@gao.gov.
[End of section]
Contents:
Letter:
Background:
The United States More Than Tripled Its Awards of Direct Assistance to
Afghanistan in 2010 through USAID and DOD:
USAID and DOD Have Taken Steps to Help Ensure Accountability over
Bilateral Direct Assistance, but USAID Has Not Required Risks to Be
Assessed in Advance in All Cases:
USAID Has Not Consistently Assessed Risks of Contributions to ARTF,
While DOD Has Recently Established Risk Assessment Guidance for LOTFA:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the U.S. Agency for International
Development:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: U.S. Allocations of Funds to Reconstruct Afghanistan, Fiscal
Years 2002-2010:
Table 2: USAID Direct Assistance to Afghanistan, Fiscal Years 2009-
2010:
Table 3: USAID Preaward Risk Assessments for Bilateral Direct
Assistance:
Table 4: USAID Compliance with Selected Controls in Its Bilateral
Direct Assistance Agreements, as of February 15, 2011:
Table 5: USAID Documentation of Approvals of Procurement Steps in
Contracts Awarded under USAID-Financed Programs:
Figures:
Figure 1: Changes in the Levels of U.S. Direct Assistance Awards and
Contributions, Fiscal Years 2009-2010:
Figure 2: U.S. Direct Assistance Awards and Contributions, Fiscal Year
2010:
Abbreviations:
ADS: Automated Directives System:
ANA: Afghan National Army:
ANP: Afghan National Police:
ARTF: Afghanistan Reconstruction Trust Fund:
CAO: Control and Audit Office:
CSTC-A: Combined Security Transition Command--Afghanistan:
DOD: Department of Defense:
LOTFA: Law and Order Trust Fund for Afghanistan:
MAIL: Ministry of Agriculture, Irrigation, and Livestock:
MOD: Ministry of Defense:
MOF: Ministry of Finance:
MOI: Ministry of Interior:
PIO: Public International Organization:
SIGAR: Special Inspector General for Afghanistan Reconstruction:
State: Department of State:
Treasury: Department of the Treasury:
UNDP: United Nations Development Program:
USAID: U.S. Agency for International Development:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 20, 2011:
Congressional Addressees:
Since 2002, the United States has allocated about $56 billion for
programs to reconstruct Afghanistan. In January 2010, the Department
of State (State) announced that the United States would lessen its
reliance on contractors to implement reconstruction programs by
providing more funds to the Afghan government itself. The United
States also joined other donors in 2010 by pledging that within the
next 2 years it would provide 50 percent or more of its Afghan
development aid through the Afghan government's national budget. Such
direct assistance is intended to help develop the capacity of Afghan
government ministries. Direct assistance is currently being provided
by two U.S. agencies, according to U.S. officials. The U.S. Agency for
International Development (USAID) and the Department of Defense (DOD)
do so (1) through bilateral agreements with individual Afghan
ministries and (2) by providing funds to multilateral trust funds
administered by the World Bank and the United Nations Development
Program (UNDP). The prospect of increasing U.S. direct assistance to
Afghanistan raises the issue of the accountability for such assistance.
We performed our work under the authority of the Comptroller General
to conduct work on GAO's initiative because of broad congressional
interest in the oversight and accountability of U.S. funds provided to
Afghanistan. We assessed (1) the extent to which the United States,
through USAID and DOD, has increased its direct assistance to
Afghanistan, (2) USAID and DOD steps to ensure accountability for
bilateral direct assistance, and (3) USAID and DOD steps to ensure
accountability for direct assistance to multilateral trust funds in
Afghanistan.
To address these objectives, we reviewed State, USAID, and DOD
documents. We interviewed officials from the U.S. Department of the
Treasury, State, USAID, DOD, and the World Bank in Washington, D.C.,
and Kabul, Afghanistan, as well as UNDP officials in Kabul. To
identify the extent to which USAID and DOD had increased the level of
direct assistance from fiscal year 2009 to fiscal year 2010, we
obtained financial information from (1) USAID's mission in Kabul,
Afghanistan, and (2) the Office of the Under Secretary of Defense
(Comptroller). We determined these data to be sufficiently reliable
for our purposes. We focused on awards or contributions of U.S. funds
that are channeled through the Afghan government national budget for
use by Afghan ministries or other government entities, consistent with
USAID and DOD definitions and practices.[Footnote 1]
To assess steps taken by USAID and DOD to help ensure the
accountability of their bilateral and multilateral direct assistance
to the Afghan government, we reviewed the policies and practices the
agencies use to assess risks associated with direct assistance and to
establish control mechanisms over the use of direct assistance funds.
We applied criteria drawn from GAO's Standards for Internal Control in
the Federal Government,[Footnote 2] which defines risk assessment and
control activities as key elements of an internal control framework to
provide reasonable assurance that agency assets are safeguarded
against fraud, waste, abuse, and mismanagement. Risk assessment
includes identifying internal and external risks an organization faces
and their potential effect. Control activities are the policies and
procedures (such as approvals, reconciliations, and reviews) agencies
implement to mitigate identified risks and are essential for
accountability of government resources. We also used criteria from
USAID and DOD guidance concerning direct assistance.
We conducted this performance audit from August 2010 to July 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Details on our
objectives, scope, and methodology are contained in appendix I.
Background:
Decades of conflict have left Afghanistan a poor nation with high
illiteracy, weak government institutions, and a high level of
corruption. According to Transparency International's index of
perceived corruption, Afghanistan is tied with Burma as the world's
second most corrupt nation.[Footnote 3] The United States has
allocated about $56 billion for fiscal years 2002 to 2010 to
reconstruct Afghanistan, as shown in table 1.[Footnote 4] The United
States allocated nearly half of these funds--about $27 billion--in
fiscal years 2009 and 2010 alone. For fiscal year 2011, DOD has
allocated more than $12.6 billion in additional funds for Afghan
reconstruction. While the allocation of fiscal year 2011 State and
USAID funds for Afghanistan had not been finalized as of June 2011,
State's fiscal year 2011 budget request included more than $5 billion
for Afghan international affairs programs and operations.
Table 1: U.S. Allocations of Funds to Reconstruct Afghanistan, Fiscal
Years 2002-2010:
Program category: International affairs programs[A];
2002: $890.4 million;
2003: $764.3 million;
2004: $1.969 billion;
2005: $2.749 billion;
2006: $1.061 billion;
2007: $1.910 billion;
2008: $2.212 billion;
2009: $2.771 billion;
2010: $4.178 billion;
Total: $18.504 billion.
Program category: International affairs operations[B];
2002: $31.7 million;
2003: $35.3 million;
2004: $119.8 million;
2005: $136.1 million;
2006: $131.9 million;
2007: $210.2 million;
2008: $448.8 million;
2009: $1.074 billion;
2010: $1.728 billion;
Total: $3.916 billion.
Program category: Department of Defense and other[C];
2002: $0.6 million;
2003: $167.9 million;
2004: $401.7 million;
2005: $1.946 billion;
2006: $2.311 billion;
2007: $8.008 billion;
2008: $3.476 billion;
2009: $6.453 billion;
2010: $10.756 billion;
Total: $33.521 billion.
Program category: Total;
2002: $922.7 million;
2003: $967.5 million;
2004: $2.491 billion;
2005: $4.831 billion;
2006: $3.504 billion;
2007: $10.128 billion;
2008: $6.137 billion;
2009: $10.298 billion;
2010: $16.662 billion;
Total: $55.940 billion.
Source: GAO analysis of Office of Management and Budget financial data.
[A] The category "international affairs programs" includes funds for
economic support; foreign military financing; law enforcement; global
health/child survival; anti-terrorism activities; and development,
migration, and disaster assistance.
[B] The category "international affairs operations" includes funds for
diplomatic and consulate operations, building operations, and
inspectors general operations.
[C] "Other" includes funding for training and equipping Afghan
security forces and counternarcotics activities.
[End of table]
In 2009, the executive branch adopted the Integrated Civilian-Military
Campaign Plan to guide U.S. reconstruction activities in Afghanistan.
[Footnote 5] The plan, which is currently being updated, categorizes
reconstruction activities in terms of three overarching lines of
effort--development, governance, and security. State officials have
informed us that U.S. agencies do not track Afghan reconstruction
funds by the lines of effort.[Footnote 6]
U.S. agencies have used various means to implement Afghan
reconstruction projects with these funds. In some cases, they have
hired contractors and nongovernment organizations. In other cases,
U.S. reconstruction funds have been provided directly to the Afghan
government's national budget to be used by Afghan ministries and other
government entities.
In 2010, the United States announced plans to increase direct
assistance to Afghanistan. In January 2010, the Secretary of State
announced that the United States would increase direct assistance to
the Afghan government to help Afghan ministries and other government
entities build their capacity to manage funds. At two international
conferences in 2010, the United States and other donors pledged to
provide half or more of their development aid in the form of direct
assistance to the Afghan government within 2 years, contingent on
Afghan actions to reduce corruption and strengthen public financial
management capacity.[Footnote 7] In February 2011, DOD formally
authorized direct contributions of DOD funds to two Afghan security
ministries to build their capacity and support Afghan security forces.
USAID awards direct assistance to Afghanistan through two means. It
awards direct assistance to several Afghan government entities through
bilateral agreements overseen by its mission in Afghanistan. These
entities include the Independent Directorate for Local Governance and
the ministries of Agriculture, Irrigation, and Livestock;
Communications and Information Technology; Finance; Public Health; and
Transport and Civil Aviation. Some of the bilateral agreements finance
Afghan government procurement of goods and services, while others fund
a range of other government expenses and activities, including
operating costs, salaries, agricultural development programs, and
infrastructure projects. USAID also provides direct assistance by
awarding funds to the multilateral World Bank-administered Afghanistan
Reconstruction Trust Fund (ARTF). ARTF was established in 2002 as a
vehicle for donors to pool resources and coordinate support for
Afghanistan's reconstruction. As of April 2011, 32 donors had
contributed about $4.3 billion to ARTF. ARTF provides these funds
through the Afghan government national budget to finance the
government's recurrent operating costs (e.g., wages for civil
servants, operations and maintenance costs) and national development
programs.
DOD provides direct assistance bilaterally to Afghanistan's Ministry
of Defense (MOD) and Ministry of Interior (MOI) through contributions
of funds overseen by DOD's Combined Security Transition Command-
Afghanistan (CSTC-A).[Footnote 8] According to DOD guidance, these
contributions are used to procure food, salaries, goods, services, and
minor construction in direct support of the Afghan National Army (ANA)
and the Afghan National Police (ANP). CSTC-A also contributes funds to
the multilateral UNDP-administered Law and Order Trust Fund for
Afghanistan (LOTFA), which receives contributions from several donor
nations. Most LOTFA funds are used to provide salaries to ANP
personnel.
The United States More Than Tripled Its Awards of Direct Assistance to
Afghanistan in 2010 through USAID and DOD:
The United States more than tripled its awards and contributions of
USAID and DOD direct assistance funds to the Afghan government in
fiscal year 2010 compared with fiscal year 2009 (see figure 1).
Figure 1: Changes in the Levels of U.S. Direct Assistance Awards and
Contributions, Fiscal Years 2009-2010:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2009;
DOD: $194.8 million;
USAID: $470.7 million;
Total: $665.5 million.
Fiscal year: 2010;
DOD: $576.2 million;
USAID: $1.427 billion;
Total: $2.003 billion.
Source: GAO analysis of USAID and DOD data.
[End of figure]
In fiscal year 2010, most of the direct assistance funds (about 71
percent) were awarded by USAID for activities related to development
and governance, either bilaterally (about 6 percent) or through
preferenced contributions to ARTF (about 65 percent), as shown in
figure 2. For example, USAID has contributed funding to a community
development and local governance program that is being implemented in
all of Afghanistan's 34 provinces through ARTF. The remainder was
contributed by DOD for security assistance, either bilaterally to MOD
and MOI or through LOTFA.
Figure 2: U.S. Direct Assistance Awards and Contributions, Fiscal Year
2010:
[Refer to PDF for image: pie-chart]
USAID Funding for Development and Governance - ARTF, $1.3006 billion:
65%;
DOD Funding for Security (Army) - Bilateral, $259 million: 13%;
DOD Funding for Security (Police) - Bilateral, $168 million: 8%;
DOD Funding for Security (Police) - LOTFA, $149 million: 7%;
USAID Funding for Development and Governance - Bilateral, $127
million: 6%.
Source: GAO analysis of USAID and DOD data.
Note: Percentages may not add to 100 percent due to rounding.
[End of figure]
As shown in table 2, USAID awards of direct assistance to Afghanistan
increased from over $470 million in fiscal year 2009 to more than $1.4
billion in fiscal year 2010. These awards included a $1.3 billion
grant to ARTF, more than triple what it awarded to ARTF in 2009.
[Footnote 9] USAID may obligate and disburse funds awarded to an
Afghan entity or trust fund over multiple years, depending on the
agreement's terms.[Footnote 10]
Table 2: USAID Direct Assistance to Afghanistan, Fiscal Years 2009-
2010:
Recipient: Independent Directorate for Local Governance;
Program/project: District Delivery Program;
Fiscal year 2009 awards: $0;
Fiscal year 2010 awards: $40 million.
Recipient: Ministry of Agriculture, Irrigation, and Livestock;
Program/project: Agricultural Development Fund;
Fiscal year 2009 awards: $0;
Fiscal year 2010 awards: $85 million.
Recipient: Ministry of Finance;
Program/project: Salary Support Program;
Fiscal year 2009 awards: $0;
Fiscal year 2010 awards: $2 million.
Recipient: Ministry of Finance;
Program/project: Civilian Technical Assistance Plan;
Fiscal year 2009 awards: $30 million;
Fiscal year 2010 awards: $0.
Recipient: Ministry of Communications and Information Technology;
Program/project: Policy Capacity Initiative;
Fiscal year 2009 awards: $1 million;
Fiscal year 2010 awards: $0.
Recipient: Ministry of Public Health;
Program/project: Partnership Contracts for Health Services;
Fiscal year 2009 awards: $18.2 million;
Fiscal year 2010 awards: $0.
Recipient: World Bank;
Program/project: Afghanistan Reconstruction Trust Fund;
Fiscal year 2009 awards: $421.5 million;
Fiscal year 2010 awards: $1.300 billion.
Recipient: Total;
Fiscal year 2009 awards: $470.7 million;
Fiscal year 2010 awards: $1.427 billion.
Source: GAO analysis of USAID data.
[End of table]
DOD direct assistance to MOD and MOI, including contributions to
LOTFA, grew from about $195 million in fiscal year 2009 to about $576
million in fiscal year 2010. DOD contributions to LOTFA more than
doubled from about $68 million in fiscal year 2009 to about $149
million in fiscal year 2010.[Footnote 11]
USAID and DOD Have Taken Steps to Help Ensure Accountability over
Bilateral Direct Assistance, but USAID Has Not Required Risks to Be
Assessed in Advance in All Cases:
Risk assessments and internal controls to mitigate identified risks
are key elements of an internal control framework to provide
reasonable assurance that agency assets are safeguarded against fraud,
waste, abuse, and mismanagement.[Footnote 12] USAID conducted preaward
risk assessments in most cases. However, we found that USAID's
policies for assessing direct assistance risks do not require preaward
risk assessments in all cases. USAID has not updated its policies to
reflect the USAID Administrator's July 2010 commitment to Congress
that USAID would assess all Afghan public institutions before
providing them with direct assistance. We found that in August 2010
and January 2011, USAID did not complete preaward risk assessments
before awarding funds to two Afghan government entities. USAID has
established various financial and other controls in its bilateral
direct assistance agreements with ministries that go beyond what is
required by its policies. However, it has not always ensured
compliance with those controls. DOD personnel in Afghanistan have
assessed the risk of providing funds to MOD and MOI through quarterly
reviews of each ministry's capacity. DOD established formal procedures
on risk assessment for Afghan direct assistance in June 2011 after we
informed DOD officials that DOD lacked such procedures. DOD officials
also stated that they review records of MOD and MOI expenditures to
assess whether funds have been used as intended, as required by DOD
policies established in February 2011.
USAID Has Conducted Preaward Risk Assessments in Most Cases:
USAID mission staff have complied with USAID risk assessment policies
for awarding bilateral direct assistance funds to finance Afghan
procurement activities under what USAID refers to as a host country
contract. USAID policies, as outlined in its Automated Directives
System (ADS), require USAID staff to conduct a preaward risk
assessment for a host government entity if the entity is to use the
award to procure goods and services.[Footnote 13] Specifically, staff
are required under ADS to (1) assess the entity's procurement system
and (2) obtain the Mission Director's certification of the entity's
capability to undertake the procurement. Of USAID's eight bilateral
direct assistance agreements, we identified two involving the
financing of Afghan procurement activities. In both cases, we found
that USAID mission staff, in compliance with ADS, had (1) assessed the
financial and procurement management capabilities of the Afghan
recipients (the Ministry of Communications and Information Technology
and the Ministry of Public Health) before awarding funds (see table 3)
and (2) obtained the required certifications.
Of six bilateral direct assistance agreements that did not involve
financing Afghan government procurement activities, we found that
USAID had completed such assessments before awarding funds in four
cases (see table 3). Although USAID did not conduct preaward
assessments in two cases, it was in compliance with its risk
assessment policies. Those policies state that USAID staff "should"
assess the capacity (e.g., financial management, procurement, and
personnel management capacity) of prospective recipients in cases that
do not involve financing Afghan government procurement activities.
Table 3: USAID Preaward Risk Assessments for Bilateral Direct
Assistance:
Afghan government recipient: Ministry of Transport and Civil Aviation;
Program/project: Regional Airports Project;
Preaward risk assessment report date: March 2011;
Award date: January 2011;
Total award: $6 million;
Risk assessment completed before USAID awarded funds: No.
Afghan government recipient: Independent Directorate for Local
Governance;
Program/project: District Delivery Program;
Preaward risk assessment report date: January 2011;
Award date: August 2010;
Total award: $40 million;
Risk assessment completed before USAID awarded funds: No.
Afghan government recipient: Ministry of Agriculture, Irrigation, and
Livestock;
Program/project: Agricultural Development Fund;
Preaward risk assessment report date: June 2010;
Award date: July 2010;
Total award: $85 million;
Risk assessment completed before USAID awarded funds: Yes.
Afghan government recipient: Ministry of Finance;
Program/project: Transition Coordination Commission;
Preaward risk assessment report date: July 2009;
Award date: January 2011;
Total award: $0.45 million;
Risk assessment completed before USAID awarded funds: Yes.
Afghan government recipient: Ministry of Finance;
Program/project: Salary Support Program;
Preaward risk assessment report date: July 2009;
Award date: June 2010;
Total award: $2 million;
Risk assessment completed before USAID awarded funds: Yes.
Afghan government recipient: Ministry of Finance;
Program/project: Civilian Technical Assistance Plan;
Preaward risk assessment report date: July 2009;
Award date: September 2009;
Total award: $30 million;
Risk assessment completed before USAID awarded funds: Yes.
Afghan government recipient: Ministry of Communications and
Information Technology;
Program/project: Policy Capacity Initiative;
Preaward risk assessment report date: May 2007[A];
Award date: April 2009;
Total award: $1 million;
Risk assessment completed before USAID awarded funds: Yes.
Afghan government recipient: Ministry of Public Health;
Program/project: Partnership Contracts for Health Services;
Preaward risk assessment report date: July 2007[B];
Award date: July 2008;
Total award: $18.2 million[C];
Risk assessment completed before USAID awarded funds: Yes.
Source: GAO analysis of USAID bilateral direct assistance agreements
and pre-award assessments.
[A] USAID completed a follow-up assessment of the procurement
management capabilities of the Ministry of Communications and
Information Technology in March 2008.
[B] USAID also assessed the ministry's financial management
capabilities in October 2007 and revised it in May 2008.
[C] The total amount does not include a previous fiscal year 2008
award.
[End of table]
USAID Has Not Updated Its Risk Assessment Policies to Reflect the
Administrator's Commitment to Assess All Afghan Government Recipients
in Advance:
USAID has not updated its risk assessment policies to reflect its
Administrator's commitment that USAID would assess the capabilities of
Afghan government recipients in all cases before awarding them direct
assistance funds. On July 28, 2010, USAID's Administrator responded to
concerns expressed by Members of the House Appropriations Committee's
Subcommittee on State, Foreign Operations, and Related Programs
regarding corruption and weak government capacity in Afghanistan by
committing that USAID would not proceed with direct assistance to an
Afghan public institution until USAID had ensured that the institution
had an accountable organizational structure and sound financial
management capabilities and met USAID standards. State's Office of the
Special Representative for Afghanistan and Pakistan made a similar
commitment in January 2010, when it stated that "to receive direct
assistance, Afghan ministries must be certified as having improved
accountability and transparency."[Footnote 14] However, we found that
current USAID policy for direct assistance not involving the financing
of Afghan government procurement activities does not require USAID to
assess a prospective recipient's capacity to implement a proposed
activity.[Footnote 15]
We also found that following the Administrator's July 2010 commitment,
USAID awarded direct assistance funds to two Afghan government
recipients before completing risk assessments. As shown in table 3,
USAID signed a $40 million agreement with the Independent Directorate
for Local Governance in August 2010, 5 months before completing an
assessment of that entity.[Footnote 16] It also signed a $6 million
bilateral direct assistance agreement with the Ministry of Transport
and Civil Aviation in January 2011, 2 months before completing an
assessment of the ministry.[Footnote 17] The completed risk
assessments identified areas of high risk in both entities. For
example, the Ministry of Transport and Civil Aviation was assessed as
"high risk" in the four core function areas covered by the assessment--
control environment, financial management and accounting, compliance
with applicable laws and regulations, and accountability environment.
Similarly, the Independent Directorate for Local Governance was
assessed as "high risk" in 5 of 14 areas covered, including financial
management and procurement. USAID officials told us that USAID awarded
these funds before completing the risk assessments because the
projects were urgently needed.
USAID Has Established Controls in Its Bilateral Direct Assistance
Agreements but Has Not Always Ensured Compliance:
USAID has established various financial and other controls in its
bilateral direct assistance agreements, although USAID policies do not
establish minimum standard conditions for such agreements, according
to USAID officials. Shown in table 4 are selected examples of
financial controls USAID has established within its bilateral direct
assistance agreements. USAID also required Afghan government
recipients to provide documentation demonstrating their compliance
with the selected controls. As shown in table 4, in each applicable
case, USAID ensured compliance with the selected controls.
Table 4: USAID Compliance with Selected Controls in Its Bilateral
Direct Assistance Agreements, as of February 15, 2011:
Afghan government recipient/program: Ministry of Transport and Civil
Aviation--Regional Airports Project;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Control
specified in agreement; USAID ensured compliance;
Recipient must have monitoring and evaluation plan: Control specified
in agreement; USAID ensured compliance;
Recipient must comply with periodic reporting requirement: Control
specified in agreement; USAID ensured compliance;
Recipient must maintain accounting books and records subject to audit:
Control specified in agreement; USAID ensured compliance[B].
Afghan government recipient/program: Independent Directorate for Local
Governance--District Delivery Program;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Control
specified in agreement; USAID ensured compliance;
Recipient must have monitoring and evaluation plan: Control specified
in agreement; USAID ensured compliance;
Recipient must comply with periodic reporting requirement: Control
specified in agreement; USAID ensured compliance[A];
Recipient must maintain accounting books and records subject to audit:
Control specified in agreement; USAID ensured compliance[B].
Afghan government recipient/program: Ministry of Agriculture,
Irrigation, and Livestock--Agricultural Development Fund;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Control
specified in agreement; USAID ensured compliance;
Recipient must have monitoring and evaluation plan: Control specified
in agreement; USAID ensured compliance;
Recipient must comply with periodic reporting requirement: Control
specified in agreement; USAID ensured compliance[A];
Recipient must maintain accounting books and records subject to audit:
Control specified in agreement; USAID ensured compliance[B].
Afghan government recipient/program: Ministry of Finance--Transition
Coordination Commission;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Control
specified in agreement; USAID ensured compliance;
Recipient must have monitoring and evaluation plan: Not specified in
agreement;
Recipient must comply with periodic reporting requirement: Not
specified in agreement;
Recipient must maintain accounting books and records subject to audit:
Not specified in agreement.
Afghan government recipient/program: Ministry of Finance--Salary
Support Program;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Control
specified in agreement; USAID ensured compliance;
Recipient must have monitoring and evaluation plan: Control specified
in agreement; USAID ensured compliance;
Recipient must comply with periodic reporting requirement: Control
specified in agreement; USAID ensured compliance;
Recipient must maintain accounting books and records subject to audit:
Control specified in agreement; USAID ensured compliance[B].
Afghan government recipient/program: Ministry of Finance--Civilian
Technical Assistance Plan;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Control
specified in agreement; USAID ensured compliance;
Recipient must have monitoring and evaluation plan: Control specified
in agreement; USAID ensured compliance;
Recipient must comply with periodic reporting requirement: Control
specified in agreement; USAID ensured compliance;
Recipient must maintain accounting books and records subject to audit:
Control specified in agreement; USAID ensured compliance[B].
Afghan government recipient/program: Ministry of Communications and
Information Technology--Policy Capacity Initiative;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Not
specified in agreement;
Recipient must have monitoring and evaluation plan: Not specified in
agreement;
Recipient must comply with periodic reporting requirement: Not
specified in agreement;
Recipient must maintain accounting books and records subject to audit:
Not specified in agreement.
Afghan government recipient/program: Ministry of Public Health--
Partnership Contracts for Health Services;
Recipient must establish a separate, noncommingled bank account:
Control specified in agreement; USAID ensured compliance;
Recipient must grant USAID access rights to the bank account: Not
specified in agreement;
Recipient must have monitoring and evaluation plan: Control specified
in agreement; USAID ensured compliance;
Recipient must comply with periodic reporting requirement: Control
specified in agreement; USAID ensured compliance;
Recipient must maintain accounting books and records subject to audit:
Not specified in agreement.
Source: GAO analysis of USAID bilateral direct assistance agreements
and compliance documentation.
Notes: The five controls shown in table 4 were selected based on their
reoccurrence across USAID bilateral direct assistance agreements. For
GAO's methodology, see appendix I.
[A] Control specified in agreement; USAID not able to ensure
compliance pending disbursement of funds under the agreement
(reporting is not required until after USAID has disbursed funds).
[B] Compliance with this requirement could not be verified because
USAID was in the process of conducting audits of Afghan entities'
accounting books and records at the time of our review.
[End of table]
In two cases, USAID also hired contractors to help control risks
identified in preaward assessments. For example, USAID's assessment of
the Ministry of Agriculture, Irrigation, and Livestock (MAIL)
determined that MAIL would not be able to independently manage and
account for direct assistance funds. As a result, USAID awarded a
$49.1 million contract to a U.S.-based firm to establish a unit to
manage a USAID-funded agriculture development fund, to transition that
unit to local control within 4 years, and to provide technical
assistance. Similarly, USAID's October 2007 assessment of the Ministry
of Public Health noted concerns that the ministry would continue
needing technical assistance to effectively and efficiently manage
donor funds. As a result, USAID amended an existing contract to an
international nonprofit organization to improve the capacity of the
ministry at the central level and in target provinces.[Footnote 18]
USAID has also established procurement-specific controls in its
bilateral direct assistance agreements with the Ministry of
Communications and Information Technology and the Ministry of Public
Health. These agreements provide funds to Afghan ministries to enter
into contracts for goods and services and require USAID to monitor and
approve certain steps of the procurement process for contracts over
$250,000, as applicable.[Footnote 19]
While USAID generally complied with this requirement, USAID mission
officials could not provide us with documentation showing that USAID
had done so in all cases, as shown in table 5. Specifically, USAID
mission officials either did not approve or document that they had
approved prior to execution any of 6 contracts that the Ministry of
Communications and Information Technology entered into (in table 5,
see step 7 of the procurement process). In addition, USAID mission
officials told us that USAID did not approve any of the ministry's 6
prefinancing contract documents (step 8 of the procurement process).
USAID stated that no clearance or approval was provided because the
final signed documents did not need concurrence. Similarly, USAID
documented only three instances in which it had approved any of the
Ministry of Public Health's 19 prefinancing contract documents. USAID
also did not conduct follow-up reviews of the ministry to ensure its
compliance with USAID contracting and financial management
requirements, as called for in the assistance agreement.
Table 5: USAID Documentation of Approvals of Procurement Steps in
Contracts Awarded under USAID-Financed Programs:
Procurement steps: Step 1: notice to prospective offerors;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 4 of 4;
Ministry of Public Health--Partnership Contracts for Health Services:
19 of 19.
Procurement steps: Step 2: lists of prequalified offerors, if any,
prior to issuance of the solicitation document;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: Not applicable;
Ministry of Public Health--Partnership Contracts for Health Services:
19 of 19.
Procurement steps: Step 3: complete solicitation document, prior to
issuance;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 6 of 6;
Ministry of Public Health--Partnership Contracts for Health Services:
19 of 19.
Procurement steps: Step 4: the contractor selection method (may be
part of the solicitation document);
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 6 of 6;
Ministry of Public Health--Partnership Contracts for Health Services:
19 of 19.
Procurement steps: Step 5: the selected contractor;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 6 of 6;
Ministry of Public Health--Partnership Contracts for Health Services:
19 of 19.
Procurement steps: Step 6: any decision to terminate negotiations with
the highest ranked offeror and to initiate negotiations with the next
ranked offeror or to reject all offers;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: Not applicable;
Ministry of Public Health--Partnership Contracts for Health Services:
2 of 2.
Procurement steps: Step 7: the contract, prior to execution;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 0 of 6;
Ministry of Public Health--Partnership Contracts for Health Services:
19 of 19.
Procurement steps: Step 8: signed contract documents, before financing;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 0 of 6;
Ministry of Public Health--Partnership Contracts for Health Services:
3 of 19.
Procurement steps: Step 9: contract administrative actions such as
subcontracts, amendments, and change orders as determined by USAID;
Ministry of Communications and Information Technology--Policy Capacity
Initiative: 6 of 6;
Ministry of Public Health--Partnership Contracts for Health Services:
Not applicable.
Source: GAO analysis of USAID documents.
[End of table]
USAID has taken steps to ensure that bilateral direct assistance
awards are audited. USAID policy requires audits of recipients,
including host government entities, that expend $300,000 or more in
USAID awards during a fiscal year. USAID has asserted its right to
audit Afghan recipient use of funds in all of its bilateral direct
assistance agreements, including those involving procurement.
According to USAID mission officials, USAID has contracted with audit
firms to initiate audits of three Afghan ministries (the Ministries of
Finance, Communications and Information Technology, and Public Health)
that disbursed a total of $28.8 million in USAID awards in fiscal year
2010.
DOD Has Taken Steps to Help Ensure Accountability and Recently
Established Procedures Requiring Risk Assessments:
CSTC-A has recently established procedures that require CSTC-A
personnel to assess the risks of direct assistance in advance of
providing funds to Afghan ministries. On June 12, 2011, CSTC-A
established standard operating procedures for direct assistance, as
required under DOD guidance issued on February 4, 2011.[Footnote 20]
The CSTC-A procedures identify risk assessment as the first of four
steps CSTC-A personnel must take before the direct contribution of the
funds. CSTC-A adopted these procedures after we informed DOD officials
that DOD lacked risk assessment guidance for bilateral direct
assistance.
The CSTC-A procedures specify that the primary method CSTC-A is to use
to assess risks is the Ministerial Development Board. The board
oversees CSTC-A efforts to develop the capacity of MOD and MOI. CSTC-A
officials informed us in January and February 2011 that CSTC-A has
been using this method to assess the capacity of MOD and MOI in
connection with direct assistance. They stated that CSTC-A advisers
embedded in MOD and MOI participate in quarterly assessments of MOD
and MOI progress toward meeting defined capability objectives. For
example, CSTC-A assesses MOI development in 26 different areas,
including finance and budget, procurement, and personnel management.
The assessments focus on the extent to which the ministries are
capable of achieving the objectives and identify specific strengths
and weaknesses. For example, in April 2011, CSTC-A assessed the MOD
budget and finance section responsible for ANA pay support operations.
CSTC-A determined that its strengths included experienced staff and a
willingness to tackle corruption and its weakness was a lack of budget
authority.
DOD's February 4, 2011, guidance[Footnote 21] requires CSTC-A to
establish financial controls for its contributions to MOD and MOI.
* The guidance specifically requires CSTC-A to conduct quarterly
reconciliations of CSTC-A advance payments to MOD and MOI against
records of MOD and MOI expenditures. CSTC-A officials informed us that
CSTC-A reconciles CSTC-A advance contributions against MOD and MOI
expenditure data drawn from the Ministry of Finance (MOF) Afghan
Financial Management Information System and has adjusted future
contributions accordingly. DOD officials acknowledged the
reconciliation process does not address the extent to which aggregated
line items from the system may contain inaccurate ANA and ANP payroll
data.[Footnote 22]
* The guidance also requires CSTC-A to monitor MOD and MOI use of the
contributed funds down to the subcontractor level. CSTC-A officials
informed us that they would be unable to monitor MOD and MOI
subcontractors, as called for in the DOD guidance. They stated that
the risk of sending personnel to vet MOD and MOI subcontractors in
certain regions of Afghanistan was too great.
In addition, CSTC-A advisers monitor MOD and MOI use of U.S. funds,
according to CSTC-A officials. CSTC-A informed us that it has embedded
about 500 advisers in MOD and MOI, including 6 in MOD financial
offices and 13 in MOI finance and budget offices. Also, CSTC-A
personnel participate in internal control teams that review ANA pay
processes in a different ANA corps every month.[Footnote 23]
USAID Has Not Consistently Assessed Risks of Contributions to ARTF,
While DOD Has Recently Established Risk Assessment Guidance for LOTFA:
USAID and DOD generally rely on the World Bank and UNDP to ensure
accountability over U.S. direct assistance provided multilaterally
through ARTF and LOTFA. USAID, however, has not consistently complied
with its multilateral trust fund risk assessment policies in awarding
funds to ARTF. For example, in March 2010, USAID did not conduct a
risk assessment before awarding an additional $1.3 billion to the
World Bank for ARTF. During our review, DOD established procedures in
June 2011 requiring that it assess risks before contributing funds to
LOTFA. World Bank and UNDP controls over ARTF and LOTFA funds include
the use of hired monitoring agents to help ensure that ministries use
donor contributions as intended. However, these controls face
challenges posed by security conditions and by weaknesses in Afghan
ministries. For example, the ARTF monitoring agent resigned in June
2011 due to security concerns, while weaknesses in MOI's systems for
paying wages to Afghan police challenge UNDP efforts to ensure that
MOI is using LOTFA funds as intended.
USAID Has Not Consistently Assessed the Risk of Relying on the World
Bank for Ensuring the Accountability of Its ARTF Contributions:
USAID has not consistently followed its own policies for assessing the
risk associated with its awards to the World Bank for ARTF, which have
increased from $5 million in 2002 to a total of more than $2 billion.
When the grant agreement and subsequent modifications between the
World Bank and USAID were signed, USAID policies on grants to public
international organizations (PIO), such as the World Bank, called for
preaward determinations that the PIO was a responsible
grantee.[Footnote 24] This requirement applied to both the original
grant and to any subsequent modification of the grant that
significantly increased the amount of the award. Under USAID policy,
the preaward determination should have addressed factors such as
whether the grantee's program was an effective and efficient way to
achieve a USAID objective and whether there were any reasons to
consider the grantee to be "not responsible."
USAID could not provide us with a preaward responsibility
determination of the World Bank prior to awarding ARTF an initial
grant of $5 million in 2002. While USAID did not follow its policies
to complete a preaward determination for its initial $5 million grant,
it determined, after it signed the agreement, that (1) ARTF had a
comprehensive system in place for managing the funds and (2) the World
Bank had a long history in managing multidonor pooled funding
mechanisms, in an approved 2002 memorandum requesting a deviation from
incorporating its then-mandatory standard provisions into its ARTF
grant agreement. However, USAID did not conduct preaward
determinations for 16 of the 21 subsequent modifications to the grant.
For the instance in which USAID increased the value of the award by
$1.3 billion in March 2010, USAID provided us with an unsigned and
undated memorandum that applied to a $15 million obligation.[Footnote
25] For the 5 preaward responsibility determinations that were
conducted, USAID documentation stated that the World Bank was a
responsible grantee but did not document the analysis used to support
the determinations.
In April 2011, in response to GAO recommendations and our follow-up
meetings, USAID revised and expanded its guidance on how to conduct
preaward determinations for all PIOs.[Footnote 26] The revised
guidance continues to require the USAID officer in charge of the
agreement to document preaward responsibility determinations for PIOs.
[Footnote 27] Under the new guidance, a group of USAID headquarters
officials[Footnote 28] will first place the PIO, such as the World
Bank, into one of three categories, based on USAID's experience with
the PIO and its determination of the PIO's level of responsibility.
[Footnote 29] The revised guidance requires USAID to consider several
factors in determining a PIO's level of responsibility, including the
quality of its past performance, its most recent audited financial
statements, and any other information to fully assess whether it has
the necessary management competence to plan and carry out the intended
activity. After a responsibility determination has been made, the
USAID officer in charge of the agreement must still document the
determination before making an award.
USAID's policy is to generally rely on a PIO's financial management,
procurement, and audit policies and procedures. The World Bank has
established financial controls over donor contributions to ARTF. For
example, the World Bank hired a monitoring agent responsible for
monitoring the eligibility of salaries and other recurrent
expenditures that the Afghan government submits for reimbursement
against ARTF criteria.[Footnote 30] According to the World Bank, it
conducts advance reviews of ARTF development procurement contracts.
The amount of prior review of Afghan government procurement by the
bank varies according to the method of selection or procurement, the
type of good or service being procured, and the bank's assessment of
project risk, according to the bank. The World Bank also reports that
it assesses projects semi-annually as part of regular World Bank
supervision as per World Bank policies, procedures and guidelines
based in part on project visits. Also, the bank informed us that it
manages and administers ARTF according to a set of World Bank global
policies and procedures. ARTF is part of a single audit of all trust
funds administered by the bank, and includes both an annual management
assertion over internal controls surrounding the preparation of trust
fund financial reports and a combined financial statement for all
modified cash basis trust funds.
Also, the Afghan government's external audit agency, the Control and
Audit Office (CAO),[Footnote 31] conducts annual audits of ARTF-
financed projects with the technical assistance of a firm of
international accountants that are funded by the World Bank. As part
of its supervision of ARTF-financed activities, a World Bank financial
management team reviews the CAO audit reports, discusses its
observations with government counterparts, and follows up to ensure
resolution of any outstanding issues. Following the government's
annual submission of CAO audit reports to the World Bank, the bank
sends a letter to the donors summarizing the timeliness and results of
the CAO's annual audits. The CAO's audits of 16 ARTF development
projects for the Afghan fiscal year that began in March 2009 had 16
unqualified (or "clean") results. The World Bank shares CAO audit and
monitoring agent reports with donors when requested.[Footnote 32]
World Bank financial controls over ARTF face challenges posed by
oversight entities' limited movement in Afghanistan's high-threat
environment and the limited capacity of Afghan ministries to meet
agreed-upon procurement and financial management standards, as shown
in these examples.
* Security conditions prevented CAO auditors from visiting most of the
provinces where ARTF funds were being spent.[Footnote 33] They were
able to conduct audit tests in 10 of Afghanistan's 34 provinces from
March 2009 to March 2010 and issued a qualified opinion of the
financial statements of ARTF's salary and other recurrent expenditures
as a result.[Footnote 34]
* According to the Department of the Treasury (Treasury), the ARTF
monitoring agent recently resigned from its contract with the World
Bank due to security concerns. USAID stated in July 2011 that the
monitoring agent informed the bank in May 2011 that its contract
should not be extended due to security concerns. The World Bank
reports that it is seeking a new monitoring agent, has received many
expressions of interest, and does not anticipate a gap in monitoring.
* Previously, security concerns prevented the ARTF monitoring agent
from physically verifying ARTF salary and other recurrent expenditures
outside of Kabul province from March 2009 through March 2010.[Footnote
35] The World Bank had required the monitoring agent or its
subcontractor to visit sites in at least 12 provinces to verify
expenditures made during the Afghan fiscal year that began in March
2010.
* The CAO lacks qualified auditors and faces other capacity
restraints, according to the Special Inspector General for Afghanistan
Reconstruction (SIGAR) and USAID.[Footnote 36] However, it uses
international advisers and contracted auditors, funded by the World
Bank, to help ensure that its audits of ARTF comply with international
auditing standards. The World Bank recently reported that the overall
timeliness of the CAO audits have been improving since 2006.
* The World Bank and donors have expressed concern over the level of
ineligible expenditures submitted by the Afghan government for
reimbursement.[Footnote 37] While ineligible expenditures are not
reimbursed, the bank considers the level of ineligible expenditures to
be an indicator of weaknesses in the Afghan government's ability to
meet agreed-upon procurement and financial management standards. The
ARTF monitoring agent has questioned whether Afghan government civil
servants have the experience and knowledge necessary to perform
transactions in a manner eligible for reimbursement and whether
ministries' internal procedures fully reflect Afghan government laws
and regulations.[Footnote 38]
Partly as a result of recommendations from a 2008 independent
evaluation of ARTF by a Norwegian-based firm and discussions with
donors,[Footnote 39] the World Bank is currently seeking to revise its
2002 grant agreements with donors to reflect its efforts to strengthen
ARTF governance. According to the World Bank, the recommended changes
include clarifying and strengthening donors' oversight roles and
responsibilities over ARTF. In response to our inquiries, the World
Bank stated in April 2011 that it is considering incorporating its
current standard provisions, applicable to multidonor trust funds, in
the amended grant agreements with donors. These provisions would allow
donor countries greater access to accounting and financial records and
information. Under the current agreement with all donors, the World
Bank provides donors with periodic reports, such as quarterly status
reports, and an annual management assertion together with an
attestation from the bank's external auditors on the satisfactory
performance of the bank's procedures and controls.
CSTC-A Has Recently Established Procedures Requiring That It Assess
Risks Associated with Contributions to LOTFA:
During our review on June 12, 2011, CSTC-A issued new procedures for
direct assistance that require CSTC-A to conduct precontribution risk
assessments before contributing funds to LOTFA.[Footnote 40] CSTC-A
staff had previously informed us in February 2011 that CSTC-A had not
assessed the risks of providing funds to LOTFA. Instead, CSTC-A had
regularly assessed the capabilities and weaknesses of MOI. For
example, CSTC-A assessed MOI's finance and budget section in March
2011 and determined that while the section's strengths included a
responsiveness to pay issues, its weaknesses included a lack of well-
trained staff and an unwillingness to change.
CSTC-A generally relies on UNDP's financial controls to ensure the
accountability of funds it has contributed to LOTFA. CSTC-A
contribution letters to LOTFA request that UNDP provide CSTC-A with
quarterly reports, which UNDP posts on its Web site.[Footnote 41] CSTC-
A officials informed us that CSTC-A reconciles its contributions to
LOTFA annually. UNDP's LOTFA project manager in Kabul informed us that
UNDP makes copies of audits of LOTFA available upon request. CSTC-A
officials told us they have not requested LOTFA audits.
UNDP has established financial controls over the funds it provides to
MOI for ANP expenses. It has stated that it reconciles its
contributions with MOF records of MOI expenses on a quarterly and
annual basis. UNDP recently reported that it deducted $17.6 million
from its contribution to MOI as a result of ineligible expenses
identified during its annual reconciliation for March 2009 through
March 2010. UNDP has also hired a monitoring agent to review and
monitor ANP remunerations and generate independent reports. UNDP staff
told us that the LOTFA monitoring agent has offices in all regional
police zones, which cover all of Afghanistan's provinces. UNDP has
reported that the monitoring agent operates in all ANP zones and
conducts sample verifications of 30 percent of the total number of
police.
Similar to the World Bank's controls over ARTF, UNDP's financial
controls over LOTFA face challenges stemming from Afghanistan's
security environment. SIGAR reported in April 2011 that security
issues had impaired efforts by LOTFA's monitoring agent to (1) recruit
staff in a high-threat province and (2) travel in 7 of Afghanistan's
34 provinces for half of 2010. SIGAR also reported that security
concerns had delayed LOTFA's reconciliation of 2009 salaries.[Footnote
42] UNDP officials also told us that security concerns had restricted
UNDP movements in Afghanistan.
UNDP's financial controls also face challenges stemming from MOI's
institutional weaknesses. UNDP has reported that MOI's "insufficient
ownership and capacity development" remains one of LOTFA's risks and
that it has taken steps to mitigate this risk. Some problems that have
been identified with MOI include the following:
* In 2009, we reported that MOI did not have an accurate staffing
roster, according to CSTC-A, and that the number of ANP personnel was
unclear.[Footnote 43] We found that uncooperative ANP commanders were
impeding State and MOI efforts to implement a new ANP identification
card system to positively identify all police for pay purposes,
according to State officials. According to State officials, these
commanders were preventing State and MOI from determining the status
of nearly 30,000 individuals whose names had been submitted to receive
ANP identification cards[Footnote 44]. We recommended that DOD and
State consider provisioning future U.S. contributions to LOTFA to
reflect the extent to which U.S. agencies had validated the status of
MOI and ANP personnel to help ensure that the United States was not
funding salaries of unverified personnel.[Footnote 45]
* In 2011, SIGAR reported that MOI's payroll system provides little
assurance that MOI is paying only working ANP personnel or that LOTFA
funds are reimbursing only eligible ANP costs. MOI is also unable to
pay all police through relatively secure systems. We have previously
reported concerns regarding MOI pay systems.[Footnote 46] UNDP and
CSTC-A have worked with MOI to develop electronic systems to reduce
opportunities for skimming and corruption. One such system transfers
funds directly into individual bank accounts established by individual
Afghan police. Although progress has been made in establishing these
systems, more than 20 percent of ANP staff are still paid using manual
cash systems that are more vulnerable to abuse.
Conclusion:
The recent tripling of U.S. direct assistance awards to Afghan
government entities, coupled with the vulnerability of this assistance
to waste, fraud, and abuse in the uncertain Afghan environment, makes
it essential that U.S. agencies assess risks before awarding funds and
implement controls to safeguard those funds. Direct assistance to the
Afghan government involves considerable risk given the extent of
corruption, the weak institutional capacity of the Afghan government
to manage finances, the volatile and high-threat security environment,
and that the U.S. funds may be obligated months or years after they
are awarded. Because conflict in many parts of Afghanistan poses
significant challenges to efforts to ensure that funds are used as
intended, the level of risk in Afghanistan warrants, to the extent
feasible, sound internal controls and oversight over the billions of
dollars that the U.S. government has invested in Afghanistan. Although
risk assessment is a key component of internal controls, current USAID
policy does not require preaward risk assessments of all Afghan
government recipients of U.S. direct assistance funds. To safeguard
U.S. direct assistance funds, it is important that (1) the USAID
Administrator follow through on his July 2010 commitment to Congress
to assess risks associated with each Afghan government entity before
awarding funds, (2) USAID consistently implement controls it
establishes in bilateral direct assistance agreements, and (3) USAID
consistently adhere to its risk assessment policies for multilateral
trust funds in awarding funds to ARTF.
Recommendations for Executive Action:
We recommend that the Administrator of USAID take the following three
actions:
* Establish and implement policy requiring USAID to complete risk
assessments before awarding bilateral direct assistance funds to
Afghan government entities in all cases.
* Take additional steps to help ensure that USAID consistently
implements controls established in its bilateral direct assistance
agreements with Afghan government entities, such as requiring the
retention of documentation of actions taken.
* Ensure USAID adherence with its policies for assessing risks
associated with multilateral trust funds in awarding funds to ARTF.
Agency Comments and Our Evaluation:
We provided a draft of this report for comment to the Administrator of
USAID, and to the Secretaries of Defense, State, and the Treasury.
Defense, State, and the Treasury declined to provide comments.
Treasury provided us with technical comments, which we incorporated in
this report as appropriate. The World Bank and UNDP provided us with
technical comments on the portions of the draft report that we
provided them describing ARTF and LOTFA. We have incorporated these
technical comments in this report as appropriate.
USAID provided written comments on a draft of our report, which are
reprinted in appendix II.
With regard to our recommendation that USAID establish and implement
policies requiring USAID staff to complete risk assessments before
awarding bilateral direct assistance funds to Afghan government
entities in all cases, USAID stated that its existing policies and
procedures in ADS already include requirements for risk assessment for
each form of government-to-government assistance mechanism. USAID
noted that for host country contracts, ADS requires an advance
assessment of a host government's procurement systems (ADS 305). USAID
also stated that for cash transfer agreements, ADS requires an
analysis of a host government's ability to comply with the agreements.
USAID further stated that its general activity planning guidance
contains a recommendation that USAID offices should consider the
capacity of potential partners to implement planned functions (ADS
201).
Although USAID policy in ADS includes some form of risk assessment for
the funding mechanisms in use in Afghanistan, it does not require that
a risk assessment be conducted in all cases. Specifically, ADS 305's
requirement for preaward assessment of host country contracts did not
apply to six of the eight bilateral direct assistance cases we
identified, because these six cases do not involve procurement.
Further, according to the USAID comptroller, these six cases were not
cash transfer agreements. As a result, these six cases fall under
USAID's general activity planning guidance (ADS 201), which recommends-
-but does not require--that USAID offices assess the capacity of
potential partners in advance. As noted in this report, the lack of
specific requirement resulted in USAID making awards in two cases
prior to completing a risk assessment. Therefore, we retained our
recommendation that USAID establish and implement policies requiring
preaward risk assessments in all cases in Afghanistan.
USAID also commented that it has taken additional steps to ensure
that, going forward, risk assessments are completed in advance for
each type of funding mechanism, in line with the Administrator's July
2010 statement to Congress. Further, these steps are being undertaken
"in light of" the Department of State's July 14, 2011, certification
to Congress that the U.S. and Afghan governments have established
mechanisms within each implementing agency to ensure that certain
fiscal year 2010 funds will be used as intended[Footnote 47]. On July
14, 2011, State did make this certification to Congress. However, the
certification applies only to certain fiscal year 2010 funds,
underscoring the need for USAID to establish a requirement for
preaward assessments in Afghanistan in all cases in its policies and
procedures.
With regard to our recommendation that USAID take additional steps to
help ensure that it consistently implements controls established in
its bilateral direct assistance agreements with Afghan government
entities, USAID agreed to take such steps concerning its host country
agreements with Afghan government entities. In doing so, USAID noted
that USAID policy is to be as sparing in exercising its prior approval
rights as sound management permits.
With regard to our recommendation that it adhere to its policies for
assessing risks associated with multilateral trust funds in awarding
funds to ARTF, USAID acknowledged that it had not always prepared or
adequately documented its determinations for several ARTF grant
amendments. USAID stated that it will follow its new procedures for
such determinations, which it revised in April 2011.
USAID also provided us with technical comments, which we have
incorporated as appropriate.
We are sending copies of this report to the appropriate congressional
committees; the Secretaries of Defense, State, and the Treasury; the
Administrator of USAID; and other interested parties. The report also
is available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-7331 or johnsoncm@gao.gov. Contact points for
our Offices of Public Affairs and Congressional Relations may be found
on the last page of this report. GAO staff who made key contributions
to this report are listed in appendix III.
Signed by:
Charles Michael Johnson Jr.
Director:
International Affairs and Trade:
List of Congressional Addressees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable John Kerry:
Chairman:
The Honorable Richard Lugar:
Ranking Member:
Committee on Foreign Relations:
United States Senate:
The Honorable Joseph I. Lieberman:
Chairman:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Buck McKeon:
Chairman:
The Honorable Adam Smith:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable Ileana Ros-Lehtinen:
Chairman:
The Honorable Howard L. Berman:
Ranking Member:
Committee on Foreign Affairs:
House of Representatives:
The Honorable Kay Granger:
Chairwoman:
The Honorable Nita M. Lowey:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs
Committee on Appropriations:
House of Representatives:
The Honorable John F. Tierney:
Ranking Member:
Subcommittee on National Security, Homeland Defense and Foreign
Operations:
Committee on Oversight and Government Reform:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report assesses (1) the extent to which the U.S. Agency for
International Development (USAID) and the Department of Defense (DOD)
have increased direct assistance, (2) USAID's and DOD's steps to
ensure accountability for bilateral direct assistance, and (3) USAID's
and DOD's steps to ensure accountability for multilateral direct
assistance.
To identify the extent to which USAID and DOD had increased their
direct assistance, we first met with officials from the Department of
State and USAID to define the scope of the term "direct assistance"
for the purpose of this review.[Footnote 48] We then adopted USAID's
definition of direct assistance (or "on-budget" assistance) as U.S.
funds provided through the Afghan government national budget for use
by Afghan ministries or other government entities. This definition is
consistent with guidance and procedures developed by the Office of the
Under Secretary of Defense (Comptroller) and DOD's Combined Security
Transition Command-Afghanistan (CSTC-A).[Footnote 49] We focused on
fiscal year 2009 and fiscal year 2010 to identify funding developments
tied to the President's 2009 announcement of a new U.S. strategy for
Afghanistan and subsequent pledges concerning direct assistance to the
Afghan government.
* To identify the extent to which USAID had increased its direct
assistance, we obtained financial information from USAID's mission in
Kabul, Afghanistan. This information included USAID quarterly
financial reports and USAID direct assistance agreements with Afghan
government entities and the World Bank (including any modifications to
the agreements). We used this information to identify the value of the
direct assistance USAID awarded in fiscal years 2009 and 2010. For the
value of each award, we used what USAID refers to as the "total
estimated contribution" that it has committed to provide, subject to
the availability of funds, in signing a direct assistance agreement.
For the date, we used each agreement's signature date, in keeping with
USAID's use of the signature date as the effective date of the funded
activity. We used the signature dates to allocate each award's value
to either fiscal year 2009 or fiscal year 2010. In using this data in
the report, we noted that once it has awarded funds on a specific
date, USAID may obligate and disburse those funds over multiple years,
depending on the terms of the agreement. We assessed these data to be
sufficiently reliable for our purposes.
* To identify the extent to which DOD had increased its direct
assistance, we obtained financial information from DOD's Office of the
Under Secretary of Defense (Comptroller). This information included
funds contributed to the Afghan Ministry of Defense (MOD) and the
Afghan Ministry of Interior (MOI) by CSTC-A and the Defense Security
Cooperation Agency. According to the Office of the Under Secretary of
Defense (Comptroller), each DOD contribution to MOD, MOI, and the Law
and Order Trust Fund for Afghanistan (LOTFA) was awarded, obligated,
and disbursed in close succession. We allocated each contribution's
value to the fiscal year in which the contribution was made. We
assessed these data to be sufficiently reliable for our purposes.
To assess steps taken by USAID and DOD to help ensure the
accountability of their bilateral direct assistance to Afghan
ministries and other government entities, we reviewed the policies and
practices the agencies use to assess risks associated with direct
assistance and to establish control mechanisms over the use of direct
assistance funds.
* Our assessments were based on criteria drawn from GAO's Standards
for Internal Control in the Federal Government.[Footnote 50] Standards
for Internal Control in the Federal Government, issued pursuant to the
requirements of the Federal Managers' Financial Integrity Act of 1982,
provides the overall framework for establishing and implementing
internal control in the federal government. Minimum internal control
standards for providing reasonable assurance that agency assets will
be safeguarded against fraud, waste, abuse, and mismanagement include
risk assessment and control activities. Standards for Internal Control
in the Federal Government defines risk assessment and control
activities as key elements of an internal control framework. Risk
assessment includes identifying internal and external risks an
organization faces and their potential effect. Control activities are
the policies and procedures (such as approvals, reconciliations, and
reviews) agencies implement to mitigate identified risks and are
essential for accountability of government resources.
* To evaluate relevant USAID policies and practices against these
criteria, we reviewed information from both headquarters and the USAID
mission in Afghanistan. We reviewed USAID agencywide policies for
awarding bilateral direct assistance funds to host government
entities, as outlined in (1) USAID's Automated Directives System
(ADS)[Footnote 51] and (2) interim guidance USAID provided to its
mission on the use of direct assistance. We reviewed bilateral direct
assistance program information from the USAID mission in Afghanistan,
including preaward assessment procedures and reports, training
material, direct assistance agreements, compliance documentation,
approval memorandums, memorandums of understanding, and mission
orders. To identify USAID controls established over the use of direct
assistance funds and determine whether USAID ensured compliance with
its controls, we (1) reviewed all USAID bilateral direct assistance
agreements, (2) identified the controls USAID established in each
agreement, and (3) reviewed documentation USAID provided to us to
demonstrate it had ensured compliance with its controls. We limited
our analysis to controls triggered per the terms of each agreement
before February 15, 2011. We also reviewed information from the USAID
Office of Inspector General in Afghanistan regarding the mission's
preaward assessment process. We interviewed USAID officials in
Washington, D.C., and in Kabul, Afghanistan.
* To assess DOD policies and practices, we reviewed information from
the Office of the Undersecretary of Defense (Comptroller) and CSTC-A.
This information included the Under Secretary's February 4, 2011,
Interim Guidance on Afghanistan Security Forces Fund (ASFF)
Contributions to the Government of the Islamic Republic of Afghanistan
(GIRoA), CSTC-A's standard operating procedures for direct
contributions, DOD contribution letters to MOD and MOI, and DOD
assessments of the strengths and weaknesses of these ministries. We
also interviewed DOD officials in Washington, D.C., and Kabul.
To assess steps taken by USAID and DOD to help ensure the
accountability of their direct assistance to Afghan ministries through
multilateral trust funds, we reviewed the policies and practices the
agencies use to assess risks associated with direct assistance and to
establish control mechanisms over the use of direct assistance funds.
* Our assessments were again based on criteria drawn from GAO's
Standards for Internal Control in the Federal Government,[Footnote 52]
which defines risk assessment and control activities as key elements
of an internal control framework.
* To evaluate relevant USAID policies and practices regarding
multilateral trust funds against these criteria, we reviewed USAID
agencywide policies for awarding direct assistance to multilateral
trust funds such as the World Bank-administered Afghanistan
Reconstruction Trust Fund (ARTF), as outlined in USAID's Automated
Directives System.[Footnote 53] We also reviewed ARTF-related program
and budget documents from the USAID mission in Afghanistan, including
USAID's 2002 grant agreement with ARTF and modifications to the
agreement. We also met with officials of the Department of the
Treasury to coordinate our work regarding the World Bank. We reviewed
World Bank documents concerning ARTF and interviewed USAID and World
Bank officials in Washington, D.C., and in Kabul.
* To assess DOD policies and practices regarding multilateral trust
funds against these criteria, we reviewed information from the Office
of the Undersecretary of Defense (Comptroller) and CSTC-A. This
information included the Under Secretary's February 4, 2011, Interim
Guidance on Afghanistan Security Forces Fund (ASFF) Contributions to
the Government of the Islamic Republic of Afghanistan (GIRoA) and CSTC-
A's standard operating procedures for direct contributions. We also
reviewed United Nations Development Program (UNDP) documents and
reports concerning the Law and Order Trust Fund for Afghanistan and
interviewed DOD officials in Washington, D.C., and in Kabul, as well
as UNDP officials in Kabul.
[End of section]
Appendix II: Comments from the U.S. Agency for International
Development:
The U.S. Agency for International Development letter was signed
electronically by Sean C. Carroll, Chief Operating Officer.
USAID:
From The American People:
July 14, 2011:
Charles M. Johnson, Jr.
Director, International Affairs and Trade:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Johnson:
I am pleased to provide the U.S. Agency for International Development's
formal response to the GAO draft report entitled "Afghanistan: Actions
Needed To Improve Accountability of U.S. Assistance To Afghanistan
Government" (GA0-11-710).
The enclosed USAID comments are provided for incorporation with this
letter as an appendix to the final report.
Thank you for the opportunity to respond to the GAO draft report and
for the courtesies extended by your staff in the conduct of this audit
review.
Sincerely,
Sean C. Carroll /s/:
Chief Operating Officer:
U.S. Agency for International Development:
Enclosure: a/s:
[End of letter]
USAID Comments On GAO Draft Report No. GA0-11-710:
General Comments:
Recommendation 1: We recommend that the Administrator of USAID
"establish and implement policy requiring USAID to complete risk
assessments before awarding bilateral direct assistance funds to
Afghan government entities in all cases." (emphasis added)
Management Comments: Consistent with the definition used by GAO, USAID
defines "risk assessment" as an internal management process for
identifying, analyzing and managing risks relevant to achieving the
objectives of safeguarding assets, compliance with relevant laws and
regulations and reliable financial reporting.
It should be noted that existing USAID policies and procedures, as
described below, set forth in our Automated Directive System (ADS)
already include requirements for risk assessments that are targeted,
in large part, to the type of direct government-to-government
assistance mechanism proposed. As explained below, each type of USAID
direct government-to-government assistance mechanism includes some
form of risk assessment. Consistent with USAID's Implementation and
Procurement Reform objective of strengthening host country capacity to
improve aid effectiveness and sustainability by increasing use of
reliable host country systems and institutions to provide support to
host countries, USAID has taken additional steps to ensure that, going
forward, risk assessments are completed in advance not just for each
type of funding mechanism as described above, but also for each and
every GIRoA institution proposed as an implementing agency for a
direct government-to-government assistance mechanism.
These additional steps being taken by USAID are in line with the
Administrator's July 2010 statement to Congress. Furthermore, with
respect to Afghanistan, these measures are being undertaken in light
of the certification required under the Economic Support Fund header
of the Department of State, Foreign Operations, and Related Programs
Appropriations Act, 2010 (Division F of P.L. 111-117) which includes,
inter alia, a requirement that the United States Government and the
Government of the Islamic Republic of Afghanistan (GIRoA) have
established mechanisms within each GIRoA implementing agency to ensure
that ESF funds used for the purposes for which they were intended
prior to the provision of direct government-to-government assistance.
As referenced above, USAID has several different types of direct
government-to-government assistance mechanisms. Among those most
widely used are host country contracts, fixed amount reimbursement
agreements, implementation letter financing, general budget and
balance of payment support, sector program assistance, and multi-donor
pooled funding in a segregated host government account. All include
some form of risk assessment of the host government systems or
institutions. Below is a brief description of the USAID policies and
procedures that include some form of assessment of host government
systems or institutions for the direct government-to-government
assistance mechanisms used or proposed for use in Afghanistan:
1) Host Country Contracts and Fixed Amount Reimbursements: a
requirement to assess, in advance, a host government's procurement
system under host country contracts (ADS 305), as noted in GAO's draft
report, as well as fixed amount reimbursement agreements (FARAs) (ADS
317). It is important to note that USAID's assessment of host
government procurement system is not simply a review and assessment of
its procurement functions, but it also includes a review to determine
if associated host government accounting system and internal controls
are adequate. In addition, before a host country procurement authority
is assigned a procurement action in excess of $250,000 in USAID's host
country contracting process, the USAID Mission Director must certify,
in writing, that the Contracting Agency has the capability to
undertake the specific procurement action. ADS E301.5.2b.
2) Cash Transfer Agreements: a requirement in ADS 350.3.4.2 to conduct
and document an analysis to assess a host government grantee's ability
to comply with the requirements set forth in cash transfer agreements,
including the preparation of a decision memorandum summarizing the
findings of the assessment and recommendations on the need for any
third party authorizations that may be necessary to monitor the grant
award. This written analysis should take into account the following:
a) the purpose (balance of payments support, debt buy-down, etc.) and
structure (direct payment to creditors, direct transfer to central
government bank account, etc.) of the cash transfer; b) the existence,
or lack thereof, of adequate provisions for auditing the agreement by
USAID's Office of the Inspector General or other U.S. Government
auditors; c) the host government grantee's prior history, or lack
thereof, with USAID cash transfer grant agreements; and d) the
political context and U.S. foreign policy considerations.
3) Sector Program Assistance: a requirement to undertake detailed
analysis as part of the special planning requirement for sector
program assistance under USAID's February 1996 Program Assistance
Policy Paper. This document specifies that "rigorous analysis is
crucial to a successful sector program assistance effort. Planners
must be concerned with cost/benefit, feasibility, and sustainability
questions from six analytical perspectives, including, inter alia:
"institutional, which frankly examines the capacity within the host
government and other involved organizations to develop, agree upon,
and implement all aspects of the assistance (including sectoral reform
measures, ... cash disbursements, programming and accounting for [host
country owned local currency])."
This policy document further specifies that USAID "planners must have
a clear understanding of ... any risks associated with the activity
either in terms of implementation or sustainable development impact.
4) General Activity Planning Guidance: a recommendation, as part of the
USAID activity planning processes set forth at ADS 201.3.11.9 to
assess the capacity of potential implementing partners, including host
government ministries and agencies. This policy guidance states that
USAID "offices should consider the capacity of potential partners to
implement planned functions, including, but not limited to, their
capacity for financial management, procurement, and personnel
management. Two related but different capacities are important: the
ability to produce the desired outputs and the ability to meet USAID
financial accountability requirements."
In addition to the above, Article 6 (Special Covenants) of all current
USAID Strategic Objective Agreements with GIRoA, includes the
following:
* Results Orientation. The Parties agree to work together to use
systems and structures that help staff and partners manage programs
effectively and efficiently. An ability to adjust systems and
structures when appropriate will enable the Parties to achieve results
within agreed-upon schedules.
* Transparency and Accountability. The Parties agree to follow
standards and regulations that ensure transparency and accountability.
The Parties will endeavor to work in an honest, open and direct manner
with all partners.
In addition to these existing safeguards, as part of our
Implementation and Procurement Reform objective to strengthen host
country capacity to improve aid effectiveness and sustainability by
increasing use of reliable host country systems and institutions to
provide support to host countries, USAID, led by the Office of the
Chief Financial Officer, is leading the development of a Public
Financial Management Risk Assessment Framework tool, which has been
applied in several countries.
This tool includes several steps or stages in assessing the risk
associated with using a host government system, including a Stage 1
Rapid Appraisal of Public Financial Management (PFM) Risk; a Stage 2
Questionnaire for the Public Financial Management Risk Assessment,
negotiation with the host government at Stage 3 and implementation at
Stage 4. Preparation of final guidance on each stage is underway,
including a revision to the Agency's Automated Directives System.
The Stage 1 guidance is attached.
Recommendation 2: We recommend that the Administrator of USAID take
additional steps to help ensure that USAID consistently implements
controls established in its bilateral direct assistance agreements
with Afghan government entities, such as requiring the retention of
documentation of actions taken.
Management Comments: USAID agrees to take additional steps to ensure
compliance with the requirements set forth in our host government
grant agreements with GIRoA. However, with respect to consistently
implementing controls, USAID would like to draw GAO's attention to ADS
305.5.1 with respect to USAID approvals of contracting steps. That
provision states that "As financier of host country procurement
transactions, USAID reserves in its grant agreements and
Implementation Letters the right to prior approval of most critical
steps ... It is, however, USAID policy to be as sparing in its
exercise of its rights of prior approval as sound management of its
interests permits. The exercise of USAID approval rights is not to be
construed in any case as making USAID a party to a contract."
As to additional steps that USAID will take with respect to Afghanistan,
USAID/Afghanistan is reviewing all host government grant agreements
with the GIRoA to assess GIRoA's compliance with the terms and
conditions set forth in these agreements and will issue implementation
letters under these agreements to remind GIRoA of its specific,
affirmative obligations under the agreements which we determine have
not been met.
In addition, USAID/Afghanistan is developing a Mission Order that,
among other things reminds USAID staff of the obligation to monitor
our own and GIRoA's compliance with the terms and conditions in our
host government grant agreements with GIRoA, designating this
responsibility to the Mission Program Office. As part of the same or a
separate Mission Order, and as a supplement to, but not a substitute
for, the policy and procedures set forth in USAID's ADS, we plan to
outline the general requirements, roles and responsibilities that
apply to each form of direct government-to-government assistance
mechanism. These responsibilities include the obligation of the
technical office staff in managing the direct government-to-government
assistance mechanism in partnership with a GIRoA institution, as well
as the roles and responsibilities of USAID's program, financial
management, procurement and legal staffs.
Recommendation 3: We recommend that the Administrator of USAID ensure
USAID's adherence with its policies for assessing risks associated
with multilateral trust funds in awarding funds to ARTF.
Management Comments: USAID acknowledges that, in the past,
determinations were not prepared or adequately documented for several
of the amendments to the USAID public international organization (PIO)
grant agreement with the World Bank for ARTF. In response to GAO
recommendations and follow up meetings and USAID's Implementation and
Procurement Reform, USAID issued revised ADS 308 in April 2011, which
lays out detailed procedures on responsibility determinations for
PIOs. USAID will follow such new procedures for all future PIO grants,
including grants to the World Bank and the ARTF, which may be
conducted centrally by the Agency's new Delegated Cooperation
Secretariat (DCS).
Additionally, as part of Implementation and Procurement Reform, USAID
will also require not just an initial assessment using the PFMRAF of
any host country system that may be used for direct USAID funded
project implementation, but also periodic reassessments of those
systems, as well as a new assessment in the event of a significant
increase of funding (and thus associated risk) for implementation
using those systems. This requirement will extend to 3rd party
agreements, such as the PIO grant at issue, that will make use of host
country systems for project implementation.
[End of section]
Appendix III GAO Contact and Staff Acknowledgments:
GAO Contact:
Charles Michael Johnson Jr., (202) 512-7331 or johnsoncm@gao.gov:
Staff Acknowledgments:
Major contributors to this report were Tetsuo Miyabara, Assistant
Director; Emily Gupta; Bruce Kutnick; Esther Toledo; and Pierre
Toureille. Ashley Alley, Pedro Almoguera, Diana Blumenfeld, Jeffrey
Baldwin-Bott, Gergana Danailova-Trainor, Martin De Alteriis, Karen
Deans, Christopher Mulkins, Mona Sehgal, and Eddie Uyekawa also
provided technical assistance.
[End of section]
Footnotes:
[1] DOD currently uses the term "direct contributions" to describe its
direct assistance programs. For the purposes of this report, we are
using the term "direct assistance" to describe both USAID and DOD
programs that provide funds to Afghan government entities through the
national budget. We did not include the State-funded Good Performer's
Initiative because State officials informed us that State has not
provided funds for this program through the Afghan government's
national budget.
[2] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[3] Transparency International's corruption perceptions index included
178 nations and can be viewed at [hyetlink,
http://www.transparency.org/policy_research/surveys_indices/cpi/2010/res
ults].
[4] For the purposes of this report, the term "allocations" includes
funds that Congress has specifically appropriated for Afghan
reconstruction, as well as additional funds that executive branch
agencies have allocated for Afghan reconstruction from other
appropriations.
[5] See GAO, The Strategic Framework for U.S. Efforts in Afghanistan,
[hyperlink, http://www.gao.gov/products/GAO-10-655R] (Washington,
D.C.: June 15, 2010).
[6] We requested a breakout of Afghan reconstruction funds in terms of
the Integrated Civilian-Military Campaign Plan's lines of effort from
State officials in August 2010. In February 2011, officials at the
U.S. embassy in Kabul, Afghanistan, told us that they planned to
develop such a presentation. We intend to pursue this matter as part
of our upcoming review of the revised campaign plan (Public Law 111-
84, National Defense Authorization Act for Fiscal Year 2010, Sec.
1226 - Reports on Campaign Plans for Iraq and Afghanistan).
[7] GAO is currently reviewing U.S. government efforts to build the
capacity of the Afghan government's public financial management system
and expects to issue a report on this subject in late 2011.
[8] CSTC-A oversees the U.S. role in developing the Afghan National
Security Forces. MOD is responsible for the Afghan National Army,
while MOI is responsible for the Afghan National Police.
[9] According to USAID, the $1.3 billion award represented an increase
in the ceiling of the grant to streamline the process for future
contributions.
[10] For example, the World Bank informed us that as of July 2011 it
had received $265 million of the $1.3 billion award. It also stated
that it had received $972 million in all from USAID from 2002 through
July 2011. The total estimated value of USAID awards to the ARTF
during that period was greater than $2 billion. In contrast, DOD
direct assistance contributions are awarded, obligated, and disbursed
in close succession, according to the Office of the Under Secretary of
Defense (Comptroller). For the value of each USAID award, we used what
USAID refers to as the "total estimated contribution" that it has
committed to provide, subject to the availability of funds in signing
a direct assistance agreement. For the date, we used each agreement's
signature date as the effective date of the award.
[11] During 2009 and 2010, State's Bureau for International Narcotics
and Law Enforcement Affairs contributed about $12 million to LOTFA to
support Afghan prison guards.
[12] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[13] ADS 301.5.2 and 305.3. The preaward assessment requirement
applies to cases in which USAID anticipates assigning a host
government entity a procurement action to exceed $250,000.
[14] Department of State, Office of the Special Representative for
Afghanistan and Pakistan, Afghanistan and Pakistan Regional
Stabilization Strategy (January 2010 and updated February 2010).
[15] ADS 201.3.11.9.
[16] USAID also prepared a July 2010 memo to justify the provision of
cash advances to the directorate, in which it identified potential
risks and risk mitigation steps. With regard to the risk assessment
report completed after USAID awarded funds to the directorate, the
report did not focus on the directorate's capability to implement the
funded project. It instead addressed a possible future directorate
program. In November 2010, the USAID Office of Inspector General
recommended to the mission that future reviews focus on the ministry's
capacity to implement a specific proposed program (USAID, Office of
Inspector General, Review of USAID/Afghanistan's Ministerial
Assessment Process (Kabul, Afghanistan, Nov. 6, 2010)). In response,
USAID mission officials stated that they had begun to assess
ministries based upon specific programs and that assessments would be
undertaken once host government entities were identified as
appropriate partners and programs had been conceptualized.
[17] USAID informed us in July 2011 that it did not disburse funds to
the ministry until March 2011, the same month that the assessment
report was completed.
[18] These contracts are not considered to be direct assistance and
their costs are therefore not included in our totals of USAID's
bilateral direct assistance.
[19] USAID ADS E305.5.1a, which applies when USAID finances
contractual arrangements between another country and the supplier of
goods or services, requires written USAID approval for certain steps
in the contracting process for contracts over $250,000. USAID's
bilateral direct assistance agreements with the Ministry of
Communications and Information Technology and the Ministry of Public
Health contain the same requirement found in this ADS provision
without mention of any financial threshold.
[20] Under Secretary of Defense (Comptroller), Interim Guidance on
Afghanistan Security Forces Fund (ASFF) Contributions to the
Government of the Islamic Republic of Afghanistan (GIRoA) (Feb. 4,
2011).
[21] Under Secretary of Defense (Comptroller), Interim Guidance on
Afghanistan Security Forces Fund (ASFF) Contributions to the
Government of the Islamic Republic of Afghanistan (GIRoA) (Feb. 4,
2011).
[22] The Office of the Defense Inspector General is now reviewing ANA
pay systems.
[23] We reviewed reports prepared by three of these teams in December
2010, January 2011, and February 2011. In them, CSTC-A personnel
identified problems with pay systems. These problems included poor
collaboration between levels in the ANA, the lack of finance mentors
at the corps level, inadequate training and promotion possibilities
for finance officers, a manual payroll system that does not allow
finance officers to check the accuracy of payroll data, and a shortage
of bank branches where ANA soldiers may obtain their salaries. The
reports included recommendations to address some of these issues.
[24] Prior USAID ADS 308.3.2 (effective Feb. 5, 2004).
[25] USAID also provided us with an August 2009 unsigned memorandum
that stated that ARTF had sufficient safeguards in place to minimize
the diversion or misuse of cash, goods, and services provided to
Afghanistan and assessed the risk of financing terrorist activity
through ARTF as being low in response to a mission requirement to
conduct a terrorist financing risk assessment.
[26] We recommended that USAID develop and document its approach for
assessing the eligibility of potential PIO grantees to help ensure
accountability. See GAO, UN Office for Project Services: Management
Reforms Proceeding but Effectiveness not Assessed, and USAID's
Oversight of Grants Has Weaknesses, [hyperlink,
http://www.gao.gov/products/GAO-10-168] (Washington, D.C.: November
19, 2009).
[27] USAID ADS 308.3.2.1, 308.3.2.2 (effective Apr. 19, 2011).
[28] The group, called the Delegated Cooperation Secretariat, will be
coordinated by USAID's Bureau for Policy, Planning, and Learning and
would include the offices of Acquisition and Assistance, General
Counsel, Chief Financial Officer, and Legislative and Public Affairs.
[29] The categories designate PIOs as (1) generally major
international PIOs or certain regional PIOs; (2) generally smaller,
regional PIOs, and international organizations that are not frequent
recipients of USAID assistance; or (3) PIOs that USAID headquarters
officials have subjected to special restrictions or that are not
currently eligible for USAID funding based on their financial or
management performance.
[30] ARTF criteria for eligibility include the following: Eligible
expenditures must be included in the Afghan government yearly budget;
all goods and services must be procured and accounted for in
accordance with Afghan government law and regulations; capitalized
goods and works need to be procured in accordance with the World Bank
procurement guidelines; and all military expenditures are not
qualified for financing. In addition to the Afghan laws and
regulations, the World Bank and the Afghan government have agreed on a
set of additional requirements on the eligibility of expenditures.
[31] The CAO is responsible for auditing the financial matters of the
Afghan government. It focuses on assessing the financial reporting of
Afghan government ministries and compliance with laws and regulations.
The CAO reports directly to the President of Afghanistan. We did not
assess the quality of the CAO's audits of ARTF.
[32] In addition, the Special Inspector General for Afghanistan
Reconstruction (SIGAR) is currently auditing the extent of ARTF
controls to ensure accountability over donor contributions.
[33] We have previously reported on the challenges U.S. agencies face
due to the high-threat security environment in Afghanistan. See GAO,
Afghanistan's Security Environment, GAO-10-178R (Washington, D.C.:
Nov. 5, 2009); and Afghan Army Growing, but Additional Trainers
Needed; Long-term Costs Not Determined, GAO-11-66 (Washington, D.C.:
Jan. 27, 2011).
[34] The World Bank informed us that this qualification referred to a
limitation in scope in the review of the entire civilian recurrent
costs. The CAO reviewed and gave positive assurance of $425 million
for that one year period against an ARTF ceiling of $290 million.
[35] From March 2009 to March 2010, the ARTF monitoring agent
conducted monitoring through the review of documents submitted from
eight provinces for operations and maintenance expenditures and
carried out analytical procedures for the rest of the provincial
expenditure. The monitoring agent used an audit sampling approach
intended to ensure that it monitored enough expenditure to establish
that ARTF recurrent cost funds were being used in line with
eligibility criteria, according to the bank.
[36] SIGAR, Afghanistan's Control and Audit Office Requires
Operational and Budgetary Independence, Enhanced Authority, and
Focused International Assistance to Effectively Prevent and Detect
Corruption (Apr. 9, 2010); USAID, Report on the Assessment of the
Capability of the Ministry of Finance (MoF), Da Afghanistan Bank
(DAB), and the Control and Audit Office (CAO) in regard to Managing
Direct Donor Assistance (July 27, 2009).
[37] The ratio of ineligible recurring expenditures was 11.6 percent
in the Afghan fiscal year beginning in March 2002. In the Afghan
fiscal year beginning in March 2009, the level of ineligible
expenditures was 20.1 percent.
[38] The bank informed us that procurement of civilian goods and
services over $200,000 and works contracts of more than $500,000 are
centrally reviewed for compliance with agreed-upon procedures.
[39] Scanteam, Afghanistan Reconstruction Trust Fund: External
Evaluation (Oslo: August 2008).
[40] CSTC-A adopted these procedures after we discussed the lack of
such guidance with officials from CSTC-A and the office of the Under
Secretary of Defense (Comptroller) in February 2011.
[41] These reports can be found at [hyperlink,
http://www.undp.org.af/whoweare/undpinafghanistan/Projects/sbgs/prj_lotf
a.htm].
[42] SIGAR, Despite Improvements in MOI's Personnel Systems,
Additional Actions Are Needed to Completely Verify ANP Payroll Costs
and Workforce Strengths (Apr. 25, 2011). The SIGAR report can be found
at [hyperlink, http://www.sigar.mil/pdf/audits/SIGAR%20Audit-11-
10.pdf]. UNDP did not agree with all of SIGAR's findings regarding
LOTFA. Its comments on the SIGAR report are contained in appendix IV
of that report.
[43] GAO, Afghanistan Security: U.S. Programs to Further Reform
Ministry of Interior and National Police Challenged by Lack of
Military Personnel and Afghan Cooperation, [hyperlink,
http://www.gao.gov/products/GAO-09-280] (Washington, D.C.: Mar. 9,
2009).
[44] GAO noted that, in all, more than 103,000 names had been
submitted for the identification cards, although the ANP at that time
had an authorized strength of less than 79,000.
[45] DOD did not concur with our recommendation. State concurred with
our recommendation.
[46] GAO, Afghanistan Security: U.S. Programs to Further Reform
Ministry of Interior and National Police Challenged by Lack of
Military Personnel and Afghan Cooperation, [hyperlink,
http://www.gao.gov/products/GAO-09-280] (Washington, D.C.: Mar. 9,
2009).
[47] State provided the certification in response to provisions of the
Department of State, Foreign Operations, and Related Programs
Appropriations Act, 2010, (Div. F., P.L. 111-117).
[48] We also met with State officials to obtain Office of Management
and Budget data regarding U.S. government funding for Afghan
reconstruction.
[49] Under Secretary of Defense (Comptroller), Interim Guidance on
Afghanistan Security Forces Fund (ASFF) Contributions to the
Government of the Islamic Republic of Afghanistan (GIRoA) (Feb. 4,
2011); and CSTC-A, Standard Operating Procedure (SOP) for Direct
Contributions (June 12, 2011).
[50] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[51] USAID ADS 201, 301, 305, and 591.
[52] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[53] USAID ADS 308.
[End of section]
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