Foreign Assistance
Continued Efforts Needed to Strengthen USAID's Oversight of U.S. Democracy Assistance for Cuba Gao ID: GAO-09-165 November 24, 2008The U.S. Agency for International Development's (USAID)Cuba Program provides assistance to support human rights and promote nonviolent democratic change in Cuba. From 1996 through 2008, the program awarded $83 million in grants to nongovernmental organizations and universities. In 2006, GAO found weaknesses in program oversight that increased the risk of grantees' improperly using grant funds and failing to comply with U.S. laws. In 2008, misuse of grant funds at organizations with the program's two largest grants was detected. GAO was asked to examine (1) actions that USAID has taken since 2006, or plans to take, to improve its award and oversight of the Cuba Program's grants and (2) actions that USAID has taken in response to the recently detected misuses of grant funds. GAO analyzed USAID and grantee records, conducted limited reviews at five grantees, and interviewed agency and grantee officials.
Since 2006, USAID has taken a number of steps to address identified problems with the Cuba Program's awards of democracy assistance and improve oversight of the assistance. For example, USAID has competitively awarded all Cuba Program grants since 2006, compared with 5 percent of grants awarded in 1995-2006; has hired more staff for the program office since January 2008; and contracted in April 2008 for financial services--such as reviews of grantee internal controls and procurement systems--to enhance oversight of grantees. USAID also has worked to strengthen program oversight by, for instance, ensuring preaward and follow-up reviews, improving grantee internal controls and implementation plans, and providing guidance and monitoring about permitted types of assistance and cost sharing. However, USAID has not staffed the Cuba Program at the level the agency has determined is needed for appropriate oversight; as of October 2008, the program office had five staff, compared with the 11 recommended in two USAID assessments. Further, because many of USAID's actions to improve oversight were initiated recently, their impact on the risk of the program grantees misusing grant funds or failing to comply with U.S. laws and regulations is not yet evident. In June 2008, for example, USAID's new financial services contractor found unsupported purchases at the organization with the program's largest grant. In response to the misuse of funds at organizations with the two largest Cuba Program grants, USAID suspended the two grantees in March and July 2008, respectively, pending the results of criminal investigations. To detect financial vulnerabilities at other grantees, USAID announced in mid-July 2008 that it would accelerate planned reviews of program grantees' procurement systems and initiate audits of their incurred cost, and it partially suspended two additional grantees pending the results of the procurement reviews. The program's other grants remained active pending the results of these reviews and audits. The procurement reviews--completed in August 2008 by the new financial services contractor--identified internal control, financial management, and procurement weaknesses at three grantees; USAID is working with the grantees to correct these weaknesses. The USAID Inspector General will oversee the incurred cost audits, which USAID expects to be completed by November 2008 under a separate contract with another firm.
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: Team: Phone:GAO-09-165, Foreign Assistance: Continued Efforts Needed to Strengthen USAID's Oversight of U.S. Democracy Assistance for Cuba
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Report to the Chairman, Subcommittee on International Organizations,
Human Rights, and Oversight, Committee on Foreign Affairs, House of
Representatives:
United States Government Accountability Office:
GAO:
November 2008:
Foreign Assistance:
Continued Efforts Needed to Strengthen USAID's Oversight of U.S.
Democracy Assistance for Cuba:
Cuba Democracy Assistance:
GAO-09-165:
GAO Highlights:
Highlights of GAO-09-165, a report to the Chairman, Subcommittee on
International Organizations, Human Rights, and Oversight, Committee on
Foreign Affairs, House of Representatives.
Why GAO Did This Study:
The U.S. Agency for International Development‘s (USAID) Cuba Program
provides assistance to support human rights and promote nonviolent
democratic change in Cuba. From 1996 through 2008, the program awarded
$83 million in grants to nongovernmental organizations and
universities. In 2006, GAO found weaknesses in program oversight that
increased the risk of grantees‘ improperly using grant funds and
failing to comply with U.S. laws. In 2008, misuse of grant funds at
organizations with the program‘s two largest grants was detected. GAO
was asked to examine (1) actions that USAID has taken since 2006, or
plans to take, to improve its award and oversight of the Cuba Program‘s
grants and (2) actions that USAID has taken in response to the recently
detected misuses of grant funds. GAO analyzed USAID and grantee
records, conducted limited reviews at five grantees, and interviewed
agency and grantee officials.
What GAO Found:
Since 2006, USAID has taken a number of steps to address identified
problems with the Cuba Program‘s awards of democracy assistance and
improve oversight of the assistance. For example, USAID has
competitively awarded all Cuba Program grants since 2006, compared with
5 percent of grants awarded in 1995-2006; has hired more staff for the
program office since January 2008; and contracted in April 2008 for
financial services”such as reviews of grantee internal controls and
procurement systems”to enhance oversight of grantees. USAID also has
worked to strengthen program oversight by, for instance, ensuring pre-
award and follow-up reviews, improving grantee internal controls and
implementation plans, and providing guidance and monitoring about
permitted types of assistance and cost sharing. However, USAID has not
staffed the Cuba Program at the level the agency has determined is
needed for appropriate oversight; as of October 2008, the program
office had five staff, compared with the 11 recommended in two USAID
assessments. Further, because many of USAID‘s actions to improve
oversight were initiated recently, their impact on the risk of the
program grantees misusing grant funds or failing to comply with U.S.
laws and regulations is not yet evident. In June 2008, for example,
USAID‘s new financial services contractor found unsupported purchases
at the organization with the program‘s largest grant.
In response to the misuse of funds at organizations with the two
largest Cuba Program grants, USAID suspended the two grantees in March
and July 2008, respectively, pending the results of criminal
investigations. To detect financial vulnerabilities at other grantees,
USAID announced in mid-July 2008 that it would accelerate planned
reviews of program grantees‘ procurement systems and initiate audits of
their incurred cost, and it partially suspended two additional grantees
pending the results of the procurement reviews. The program‘s other
grants remained active pending the results of these reviews and audits.
The procurement reviews”completed in August 2008 by the new financial
services contractor”identified internal control, financial management,
and procurement weaknesses at three grantees; USAID is working with the
grantees to correct these weaknesses. The USAID Inspector General will
oversee the incurred cost audits, which USAID expects to be completed
by November 2008 under a separate contract with another firm.
What GAO Recommends:
GAO recommends that USAID (1) ensure that the Cuba Program is staffed
at the level needed to fully implement planned monitoring activities
and (2) periodically assess the program‘s overall efforts to reduce
grantee risks.
Commenting on a draft of this report, USAID said that it was working to
ensure the Cuba Program has adequate staffing for strong program
oversight and that it would take steps to periodically assess the
program‘s overall efforts to address grantee risks.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-165]. For more
information, contact David Gootnick at (202) 512-3149 or
gootnickd@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
USAID Has Taken Steps to Improve Awards and Oversight of Cuba Democracy
Assistance, but Staffing for Oversight Is Not Yet Complete:
USAID Took Several Steps in Response to Reports of Misused Grant Funds
but Has Not Provided for Ongoing Risk Management:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Status of USAID's Proposed and Reported Actions to Improve
Awards and Oversight for Cuba Democracy Assistance:
Appendix III: Comments from the U.S. Agency for International
Development:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Status of USAID Cuba Democracy Grants as of October 2008:
Table 2: GAO's Findings and Recommendations and USAID's Proposed or
Reported Actions and the Status of These Actions:
Figures:
Figure 1: Funding for U.S. Democracy Assistance for Cuba, 1996-2008:
Figure 2: November 2006 GAO Recommendations to Improve USAID Oversight
of the Cuba Program's Democracy Assistance:
Figure 3: USAID Cuba Program Democracy Grantees in 2005 and 2008:
Abbreviations:
CFC: Center for a Free Cuba:
GAD: Grupo de Apoyo a la Democracia:
NGO: Nongovernmental organization:
USAID: U.S. Agency for International Development:
USINT: U.S. Interests Section in Havana:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 24, 2008:
The Honorable William D. Delahunt:
Chairman:
Subcommittee on International Organizations, Human Rights, and
Oversight:
Committee on Foreign Affairs:
House of Representatives:
Dear Mr. Chairman:
Working through the U.S. Agency for International Development (USAID)
and the Department of State (State), the U.S. government provides
assistance intended to support human rights and to promote nonviolent
democratic change in Cuba through the development of Cuba's civil
society.[Footnote 1] From 1996 through 2008,[Footnote 2] USAID's Cuba
Program[Footnote 3] awarded grants[Footnote 4] totaling about $83
million to nongovernmental organizations (NGO) and universities
providing democracy assistance through a wide range of activities, such
as the provision of humanitarian aid, human rights training, uncensored
books and newsletters, and advocacy for human and workers' rights. For
2009, the administration has requested $20 million for Cuba democracy
assistance to be allocated between USAID and State.
In November 2006, we identified problems with USAID's management and
oversight of its Cuba Program in 1996 through 2005.[Footnote 5] These
problems included the extensive use of noncompetitive awards and grant
modifications, as well as oversight weaknesses that increased the risk
of grantees' improper use of grant funds and noncompliance with U.S.
laws and regulations. To help USAID address these problems, we made
several recommendations related to USAID's oversight of the assistance.
[Footnote 6] In 2006 and 2007, USAID said that it was taking steps to
address our recommendations and improve its management and monitoring
of democracy assistance for Cuba. However, misuse of grant funds by
employees of organizations with the two largest USAID Cuba Program
grants was reported in 2008.
You requested that we assess (1) actions that USAID has taken since
2006, or plans to take, to improve its award and oversight of the Cuba
Program's grants and (2) actions that USAID has taken in response to
the recently reported misuses of Cuba Program grant funds. To address
these objectives, we analyzed agency records, including meeting agendas
and minutes, draft and final changes to agency policy and guidance, and
audit and financial reports, including audit reports issued by the
State and USAID Inspectors General in July and September 2007,
respectively. In addition, we conducted a limited follow-up review of
financial and other records at 5 of 10 grantees we had analyzed in our
2006 report.[Footnote 7] We also observed two grantee monitoring visits
conducted by USAID Cuba Program staff in June 2008. We interviewed
agency officials, including the current and former Cuba Program
directors, contracting officials, and auditors. We conducted this
performance audit from May through July 2007 and from May through
November 2008, 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.
(See app. I for additional details about our scope and methodology.)
Results in Brief:
Since 2006, USAID has taken a number of steps to address identified
problems with its awards of democracy assistance for Cuba and to
improve oversight of the assistance. However, USAID has not staffed the
Cuba Program at the level the agency has determined is needed for
appropriate oversight. Moreover, because many of USAID's actions to
improve oversight were initiated recently, the extent to which they
will reduce the risk of the Cuba Program's grantees misusing grant
funds or failing to comply with U.S. laws and regulations is not yet
evident.
* Awards. USAID's Cuba Program has competitively awarded all $16
million of new democracy assistance since 2006, compared with only 5
percent (about $4 million) of assistance awarded in 1995-2005. In
addition, USAID's Cuba Program has discontinued its practice of
modifying existing grants to increase funding and extend completion
dates instead of awarding new ones and has implemented a policy to
require grantees to submit interim program evaluations in conjunction
with any future requests for additional funding. These changes in
program grant award policy and practices occurred in the context of
increased funding for U.S. democracy assistance for Cuba.
* Oversight. USAID recently has taken, or plans to take, a number of
actions to strengthen management and oversight of the Cuba Program's
democracy assistance. To increase resources for grant management and
oversight, in December 2006, USAID established a project committee
comprising key USAID and State senior managers. Also, since January
2008, USAID has increased staffing for its Cuba Program office in
Washington, D.C., from two to five persons; however, the number of
staff falls short of the level that, according to USAID assessments, is
needed to ensure appropriate oversight of the Cuba Program. In April
2008, to strengthen program oversight and better manage risk associated
with grantees, USAID contracted with a firm to conduct financial and
other reviews of grantees over 2 years. In addition, USAID plans to use
contract services to train and build grantees' capacity. To strengthen
its oversight during grant preaward, award, implementation, and
closeout,[Footnote 8] since 2006 USAID has issued agencywide executive
guidance on conducting and following up on preaward audits, monitored
audit lead time and follow-up, and included follow-up requirements in
new grants. In 2007 and 2008, the Cuba Program took steps to educate
grantees about internal controls and grant regulations, policies, and
procedures and reviewed and approved grantee implementation plans. Also
in 2007 and 2008, USAID provided agencywide guidance on permissible
assistance and cost sharing and is monitoring Cuba Program grantee
compliance with this guidance. Finally, the Cuba Program office has
implemented a structured approach for monitoring and evaluating grant
programs and plans to develop a process, using new staff resources, for
analyzing the results of its monitoring. Because many of USAID's
actions to improve management and oversight were taken in 2007 and
2008, any lessening of the risk of misuse of funds and noncompliance
with laws and regulations as a result of these actions is not yet
evident. For example, in June 2008, the USAID Cuba Program's new
financial contractor found that one of the first three grantees it was
tasked to review, Grupo de Apoyo a la Democracia (GAD), lacked adequate
support for some expenditures; later that month, our limited review of
five grantees' financial records confirmed this finding.
In response to the recent reports of misuse of funds at organizations
with two of the Cuba Program's largest grants, USAID suspended these
grantees and initiated planned reviews of other grantees' procurement
systems and audits of their incurred cost. USAID suspended the two
grantees--the Center for a Free Cuba (CFC) and GAD--in March 2008 and
early July 2008, respectively, pending the results of criminal
investigations. To detect financial vulnerabilities at other grantees,
USAID announced in mid-July 2008 that it would accelerate planned
reviews of most current program grantees' procurement systems and
initiate audits of their incurred cost,[Footnote 9] and it partially
suspended two additional grantees pending the results of the
procurement reviews. The program's other grants remained active pending
the results of the reviews and audits. The procurement reviews--
completed in August 2008 under the financial services contract signed
in April 2008--identified internal control, financial management, and
procurement weaknesses at three grantees, including GAD; USAID is
working with the grantees to correct these weaknesses. However, the
procurement reviews have used nearly half of the funding set aside for
the financial services contract signed in April 2008--a key element in
the agency's strategy for strengthening program oversight and better
managing risk associated with grantees. USAID's Inspector General will
oversee the incurred cost audits, which USAID expects will be completed
by November 2008 under a separate contract with an auditing firm.
To strengthen oversight of the provision of democracy assistance for
Cuba, we are recommending that the USAID Administrator (1) ensure that
the Cuba Program office is staffed at the level needed to fully
implement planned monitoring activities and (2) periodically assess the
Cuba Program's overall efforts to address grantee risks and ensure
compliance with laws and regulations.
In written comments on a draft of this report, USAID said that it was
working to ensure that the Cuba Program has adequate staff for strong
program oversight and that it would take steps to periodically assess
the Cuba Program's overall efforts to address grantee risks. USAID also
provided technical comments, which we incorporated where appropriate.
Background:
The strategic objective of USAID's Cuba Program--part of the agency's
Bureau for Latin America and the Caribbean--is to help build civil
society in Cuba by increasing the flow of accurate information on
democracy, human rights, and free enterprise to, from, and within Cuba.
The responsibilities of the Cuba Program office include cochairing an
interagency working group, developing assistance strategies and
programs, recommending Cuba democracy assistance awards, and monitoring
the implementation of USAID grants. Because of the absence of
diplomatic relations between the United States and Cuba, USAID does not
have staff in Cuba and its Washington-based staff have been unable to
obtain visas to visit the island since 2002. State's U.S. Interests
Section (USINT) in Havana plays a key role in implementing USAID's Cuba
democracy assistance.[Footnote 10]
From 1996 through 2005, USAID's Cuba Program awarded about $67 million
in democracy assistance grants to NGOs and universities to support
numerous activities related to promoting democracy and developing
Cuba's civil society.[Footnote 11] In 2005, for example, Cuba Program
grantees reported providing humanitarian and material assistance,
training for independent civil society groups,[Footnote 12] and
uncensored information.[Footnote 13] Several grantees also worked to
increase international awareness of the Cuban regime's human rights
record through activities such as sponsoring conferences and publishing
studies, while one grantee focused primarily on planning for a
democratic transition in Cuba. USAID records show that Cuba Program
grantees provided this assistance to, among others, human rights
activists, political dissidents, independent librarians, journalists,
and political prisoners and their families. From 2006 through 2008,
USAID's Cuba Program awarded 10 new democracy assistance grants
totaling about $16.3 million, bringing the total value of grants since
the Cuba Program's inception to about $83 million. As of October 2008,
the Cuba program had 13 grants totaling about $32 million; these grants
ranged in size from $500,000 to nearly $11 million.
Congress appropriated $45 million for U.S. democracy assistance for
Cuba in 2008; USAID has been allocated about $30 million of the 2008
appropriation, with the remainder allocated to State.[Footnote 14]
(Fig. 1 shows the funding for U.S. democracy assistance for Cuba for
1996-2008.) The administration has requested $20 million for 2009;
agency allocations for these funds have not yet been established.
Increased funding for democracy assistance was a recommendation of the
interagency Commission for Assistance to a Free Cuba (CAFC).[Footnote
15] USAID's Cuba Program plans other substantial awards over the next
few years.
Figure 1: Funding for U.S. Democracy Assistance for Cuba, 1996-2008:
[Refer to PDF for image]
Fiscal Year: 1996;
USAID: $0.5 million.
Fiscal Year: 1997;
USAID: $1.4 million.
Fiscal Year: 1998;
USAID: $2 million.
Fiscal Year: 1999;
USAID: $3.5 million.
Fiscal Year: 2000;
USAID: $3.5 million.
Fiscal Year: 2001;
USAID: $5 million.
Fiscal Year: 2002;
USAID: $5 million.
Fiscal Year: 2003;
USAID: $6 million.
Fiscal Year: 2004;
USAID: $21.4 million.
Fiscal Year: 2005;
USAID: $8.9 million;
State: $8.1 million;
Total: $17 million.
Fiscal Year: 2006;
USAID: $10.9 million;
State: $5.5 million;
Total: $16.4 million.
Fiscal Year: 2007;
USAID: $7.2 million;
State: $6.1 million;
Total: $13.3 million.
Fiscal Year: 2008;
USAID: $30 million;
State: $15 million;
Total: $45 million.
Sources: GAO analysis of budget records, supplemented by interviews
with USAID officials.
Note: The President has requested $20 million for democracy assistance
for Cuba for 2009.
[End of figure]
The following summarizes our November 2006 report's findings of
problems with the USAID Cuba Program's awards and oversight of its Cuba
democracy assistance from 1996 through 2005.[Footnote 16]
* Awards. USAID's Cuba Program relied on unsolicited proposals to award
about 95 percent (about $62 million) of its democracy assistance,
although agency policy generally encourages competition for such
awards. USAID's Cuba Program also frequently modified the amounts and
length of existing grants, increasing the aggregate value of these
initial agreements from about $6 million to about $50 million. In
contrast, federal law and agency policy generally favor a competitive
process; moreover, closing grants and initiating new ones has
recognized advantages.
* Oversight. Weaknesses in USAID's oversight of its assistance grants
during the preaward, award, implementation, and closeout phases
increased the risk of grantees' improper use of grant funds and
noncompliance with applicable laws and regulations. Preaward audits of
some grantees were not always completed before grant award, and USAID
did not follow up adequately to correct deficiencies identified by
these audits. Standardized language in grant agreements lacked the
detail necessary to support program accountability and the correction
of grantee deficiencies identified during preaward reviews. Moreover,
the Cuba Program office did not adequately identify, prioritize, or
manage at-risk grantees and did not have critical review or oversight
procedures in place to monitor grantee activities or cost sharing.
Additionally, USAID did not appear to routinely follow prescribed
closeout processes to identify and recover inappropriate expenditures
or unexpended funds. Our limited review of 10 grantees' financial
records identified questionable expenditures and significant internal
control weaknesses, which USAID had not detected, at 3 of the grantees;
we referred these problems to the USAID Office of Inspector General.
Figure 2 shows our 2006 recommendations to strengthen USAID's oversight
of the Cuba Program's democracy grants. In 2006 and 2007, USAID said
that it was taking steps to address our recommendations and improve its
oversight of democracy assistance for Cuba.
Figure 2: November 2006 GAO Recommendations to Improve USAID Oversight
of the Cuba Program's Democracy Assistance:
[Refer to PDF for image]
November 2006 GAO Recommendations to Improve USAID Oversight of the
Cuba Program's Democracy Assistance:
* Improve the timeliness of preaward reviews to ensure their completion
prior to the awarding of funds, and improve the timeliness and scope of
follow-up procedures to assist in tracking and resolving issues
identified during preaward reviews.
* Require that grantees establish and maintain adequate internal
control frameworks, including developing approved implementation plans
for the grants.
* Provide grantees specific guidance on permitted types of humanitarian
assistance and cost-sharing and ensure that USAID staff monitors
grantee expenditures for these items.
* Develop and implement a formal and structured approach to conducting
site visits and other grant monitoring activities, and utilize these
activities to provide grantees with guidance and monitoring.
Source: GAO-07-147.
[End of figure]
USAID Has Taken Steps to Improve Awards and Oversight of Cuba Democracy
Assistance, but Staffing for Oversight Is Not Yet Complete:
Since 2006, USAID has taken steps to improve the Cuba Program's award
and oversight of democracy assistance. To address identified problems
with awards, since 2006, the Cuba Program has competitively awarded all
democracy assistance grants and discontinued its use of funded grant
extensions. To improve its oversight of the grants, USAID has provided
additional resources to manage and oversee the Cuba Program's aid and
implemented specific improvements in grant oversight to address our
recommendations. (See app. II, table 2, for a summary of our November
2006 findings and recommendations regarding the Cuba Program's awards
and oversight of democracy assistance as well as USAID's proposed or
reported corrective actions and the status of these actions.) However,
as of November 2008, USAID had not yet achieved the staffing level it
assessed as needed for appropriate oversight. Moreover, because many of
USAID's actions to improve oversight were taken recently, their impact
on the risk of Cuba Program grantees' misusing funds and failing to
comply with U.S. laws and regulations is not yet evident.
USAID's Cuba Program Has Awarded Grants More Competitively and
Discontinued Its Use of Funded Grant Extensions:
USAID's Cuba Program has competitively awarded all $16 million (10
grants) of democracy assistance since 2006.[Footnote 17] In comparison,
during its first 10 years, the Cuba Program competitively awarded only
5 percent (about $4 million, 5 grants) of its democracy assistance. The
increased use of competition reflects the USAID Cuba Program's
implementation, in 2007 and 2008, of a policy of using competitive
solicitation as the principal method for awarding its democracy
assistance grants.[Footnote 18]
Further, since 2006, USAID's Cuba Program has discontinued its practice
of modifying existing grants to provide substantial additional funding
rather than awarding new grants and has implemented a policy that
requires grantees to submit interim evaluations in conjunction with any
future requests for additional funding. In 2006-2008, the Cuba Program
approved a limited number of no-cost grant extensions but did not
consider funded modifications to expand the program.[Footnote 19]
Additionally, in 2007, the Cuba Program notified grantees that they
would be required to submit interim program evaluations when requesting
significant increases in funding or extensions; as of November 2008,
the Cuba Program had received no such requests.
Subsequent to these changes in the USAID Cuba Program's practices and
policy, the percentage of its grantees that are worldwide or regional
NGOs increased while the percentage of grantees that are Cuba-specific
NGOs declined (see fig. 3). According to the Cuba Program Director, the
shift in grantee type reflects the more formal requirements for
submitting a grant proposal contained in the Cuba Program's 2007 and
2008 annual program statements, such as the requirement that proposals
include a detailed implementation plan. In addition, the shift reflects
a decision, starting with the 2008 program statement, to fund grants
that incorporate capacity building for subgrantees as an important
element of program activity. The Director noted that building
subgrantee capacity supports the goal of improving grant oversight, as
well as the program goal of developing civil society organizations that
will be effective in assisting Cuba's transition to democratic
governance and a free market economy.
Figure 3: USAID Cuba Program Democracy Grantees in 2005 and 2008:
[Refer to PDF for image]
This figure contains two pie-charts depicting the following data:
USAID Cuba Program Democracy Grantees in 2005:
Cuba-specific NGOs (8): 47%;
Universities (5): 29%;
Worldwide or regional NGOs (4): 24%.
USAID Cuba Program Democracy Grantees in 2005 and 2008:
Cuba-specific NGOs (4): 31%;
Universities (4): 31%;
Worldwide or regional NGOs (5): 38%.
Source: GAO analysis of USAID data.
[End of figure]
USAID Is Taking Actions to Improve Oversight of Cuba Program Democracy
Assistance, but Staffing Remains Incomplete and Impact of USAID's
Actions Is Not Yet Evident:
USAID has recently taken, or plans to take, actions to increase the
Cuba Program's resources for oversight. In addition, USAID has recently
taken actions aimed at improving specific aspects of the Cuba Program's
grant oversight. However, staffing of the Cuba Program has not reached
the level that USAID has determined is needed to ensure adequate
oversight. In addition, in some cases the impact of these actions on
the risk of Cuba Program grantees' misusing funds and failing to comply
with U.S. laws and regulations is not yet apparent.
USAID Is Increasing Resources for Cuba Program Grant Oversight:
To increase resources aimed at improving the management and oversight
of Cuba Program democracy assistance, USAID established a Cuba project
committee comprising key USAID and State senior managers in December
2006; has hired more staff for the Cuba Program office since January
2008; and contracted for financial services--including reviews of
grantee internal controls, procurement practices, and expenditures--to
enhance oversight of grantees in April 2008. In addition, the USAID
Cuba Program plans to use contract services to provide technical
assistance and build the capacity of its grantees, particularly smaller
organizations.
* Cuba project committee. USAID established a project committee in
December 2006 to lead the agency's efforts to improve its management
and oversight of Cuba Program democracy assistance and provide greater
attention from senior management. This committee consisted of senior
officials from USAID's Bureau of Management (which includes the Office
of Acquisition and Assistance) and General Counsel and State's Bureau
of Western Hemisphere Affairs (including the Cuba Transition
Coordinator), in addition to the USAID Cuba Program Director. The
committee met at least quarterly to address Cuba assistance planning,
preaward reviews, and grantee monitoring and evaluation. According to
USAID records, topics of discussion have included (1) identifying high-
risk grantees, including outstanding audit issues, the need for follow-
on reviews, and review of grantees' monitoring and implementation
plans; (2) issuing a communication to reinforce USAID guidance on
preaward reviews and stress the importance of timely follow-up to
identified findings; (3) reviewing standard grant provisions to ensure
that grantees were provided clear guidance on how to access referenced
regulatory materials; (4) obtaining and approving updated and expanded
implementation plans from certain grantees; and (5) obtaining detailed
cost-share records from contributing grantees and submitting them to
the Office of Acquisition and Assistance for review. In late 2007,
USAID divided the project committee's responsibilities between two new
committees.[Footnote 20]
* Cuba Program staffing. Since January 2008, to improve its
implementation of Cuba democracy assistance, USAID has increased
staffing in the program office from two to five persons; however,
staffing remains short of the 11 persons recommended in USAID
assessments. In December 2007, in response to concerns expressed in our
November 2006 report and a recommendation in a September 2007 report by
USAID's Office of Inspector General,[Footnote 21] a formal USAID
assessment recommended staffing the program office with a director and
eight staff to ensure successful implementation of the program as well
as appropriate monitoring and oversight of grantees and grant
funds.[Footnote 22] Subsequently, a more informal assessment by the
USAID Cuba Program office identified the need for two additional staff.
Based on these assessments, the Cuba Program has hired three new staff
members since January 2008,[Footnote 23] bringing the total staff to
five persons as of October 2008. According to the Cuba Program
Director, the program plans to hire two more staff members by January
2009 and a third by July 2009 at the earliest.
* Financial services contract. To strengthen grantee oversight and
better manage program risks, USAID's Cuba Program contracted in April
2008 with a firm headquartered in Washington, D.C., to conduct 10 to 12
financial reviews annually over 2 years, at an estimated cost of $1
million.[Footnote 24] USAID procured these services to strengthen
program management and provide grantees--particularly smaller, less
experienced organizations--needed guidance and technical support as
recommended in our 2006 report.[Footnote 25] According to the contract
statement of work and related documents, the contractor will (1)
conduct annual financial reviews of grantees, including grantees'
internal controls, procurement practices, and expenditures; (2) follow
up on the findings and recommendations of preaward reviews and other
audits to advise whether grantees have corrected any weaknesses that
were identified; and (3) conduct other special reviews as needed.
[Footnote 26] The contracting officer and the Contract Audit Management
Division within USAID's Office of Acquisition and Assistance review and
approve all work plans (including research design, data collection
instruments, and analysis plans) and draft and final reports. In June
2008, the contractor began reviews of Cuba Program grantees'
procurement systems, starting with three Miami-based grantees.
* Program to build grantee capacity. To help improve the management and
oversight of Cuba democracy assistance, USAID's Cuba Program has taken
initial steps to establish a means to provide essential training and
additional oversight of smaller grants using a "grants under contract"
mechanism.[Footnote 27] The decision to fund this program was based on
USAID's assessment of grantee risk, particularly the risks posed by
smaller, less experienced grantees.[Footnote 28] USAID expects to start
implementing this program in 2009.
USAID Has Taken Specific Actions to Improve Cuba Program Grant
Oversight:
USAID has taken a number of actions specifically aimed at strengthening
oversight by ensuring preaward reviews and follow-up; improving grantee
internal controls and implementation plans; providing guidance and
monitoring for assistance and cost sharing; and developing structured
approaches for site visits and other monitoring.
* Preaward reviews and follow-up. USAID has taken several actions to
ensure that preaward reviews are completed prior to grant awards. The
agency also has taken several actions to improve follow-up on issues
identified during preaward reviews. Since January 2007, the Cuba
Program, working though the Cuba project and internal management
committees, has worked to provide sufficient lead time for preaward
reviews and tracked the resolution of preaward review issues. In March
2007, USAID's Office of Acquisition and Assistance issued an agencywide
bulletin that stressed the importance of (1) providing sufficient lead
time for the completion of preaward reviews and (2) timely follow-up
and resolution of deficiencies identified in those reviews.[Footnote
29] In 2007, USAID also developed revised grant agreement language
linking resolution of issues and findings of preaward reviews and
follow-up reviews to the obligation of incremental grantee funding; to
date, this language has been used in grant agreements as appropriate.
According to the Chief of the Contract Audit Management Division within
USAID's Office of Acquisition and Assistance, the Cuba Program's
planned use of the new financial review services contract will help
ensure timely follow-up on the results of preaward reviews. Previously,
competing demands on the division for preaward and follow-up reviews by
other USAID bureaus and offices had delayed reviews for some Cuba
grantees.
* Grantee internal controls and implementation plans. USAID has taken
several actions to require that grantees establish and maintain
adequate internal control frameworks and develop approved grant
implementation plans.
- Internal controls. The Cuba Program office provided grantees guidance
for accessing reference materials to relevant policies and procedures
on several occasions. This guidance included an addendum for grant
agreements, linked to relevant policies and procedures, that USAID
developed in March 2007 and that USAID records show was provided to all
grantees at, for example, grantee quarterly coordination meetings and
by e-mail. Grantees also were e-mailed a list of Internet links for all
statutory, regulatory, and legal references in their USAID grant
agreements. Additionally, in 2007, the Cuba Program office developed a
briefing outline to be used in explaining internal control and other
requirements to new grantees.
- Implementation plans. In January 2007, the Cuba project committee
recommended that the Cuba Program (1) review grantees' existing
implementation plans to ensure that such plans were documented and
adequate and (2) request that grantees with significant remaining grant
funding update and expand their implementation plans. The Cuba Program
completed its initial round of reviews in May 2007; follow-up on
recommended changes was completed April 2008. The approved plans
provide a monthly summary of anticipated activities to assist in
monitoring grantees and are to be updated annually. Further, in 2007,
the Cuba project committee recommended that the Cuba Program and the
Office of Acquisition and Assistance develop and include a new
provision in grant agreements to require that grantees submit written
implementation, monitoring, and evaluation plans for approval within 30
days of the award's start date. In 2008, USAID officials agreed on the
grant provision, which has been included in agreements for new awards.
[Footnote 30]
* Guidance and monitoring for assistance and cost sharing. USAID has
taken several steps to provide grantees specific guidance on permitted
types of assistance and on cost sharing and to ensure monitoring of
grantee expenditures for these items.
- Permitted assistance. To prevent the use of grant funds for
inappropriate expenditures, as identified in our 2006 report,[Footnote
31] USAID has provided grantees clearer, more detailed guidance
regarding items that may be provided as humanitarian or material
assistance.[Footnote 32] In addition, in early 2007, the Cuba Program
required existing grantees to include detailed lists of proposed items
in their updated implementation plans and requires such lists in the
implementation plans required to be submitted with new grant proposals.
USAID reports that these lists enhance oversight and monitoring of
grantee activities. In addition, the financial services contractor will
verify whether grantee assistance costs were allowable.
- Cost sharing. USAID has provided agencywide guidance on cost sharing
and reviewed grantees' cost-share contributions. In January 2007, as
recommended by the Cuba project committee, USAID's Office of
Acquisition and Assistance issued an agencywide bulletin that
reemphasized the restrictions and limits on cost sharing for grants and
clarified that USAID does not permit funds obtained from the National
Endowment for Democracy to be counted toward grantee cost-share
requirements.[Footnote 33] The cost-share policy is reflected in Cuba
democracy grant agreements. In January 2007, the Cuba project committee
recommended that the Cuba Program obtain detailed cost-share records
from grantees and submit these records to the Office of Acquisition and
Assistance for review. As of mid-June 2008, USAID had completed its
review of the cost-share records for all nine then-current grantees
with cost-share obligations and had found that three grantees had not
met a substantial share of their cost-share obligations. USAID reduced
one grantee's cost-share obligation from $1,065,860 to $523,450 and was
following up with the other two grantees regarding their failure to
meet their cost-share obligations.[Footnote 34] During two site
(monitoring) visits that we observed in June 2008, USAID staff reviewed
the types of cost sharing permitted and emphasized the importance of
keeping adequate records to support cost-share claims. In addition, the
new financial services contractor will review grantee support for cost-
share claims.
* Structured approach for site visits and other monitoring. USAID has
taken, or plans to take, several actions to develop and implement a
more formal, structured approach for site visits and other grant
monitoring activities. These actions taken included the following:
- The USAID Cuba Program has developed and used a formal, structured
approach for its quarterly site visits to grantees. To facilitate and
ensure consistency in these visits, program staff use a form to
describe grantee activities, evaluate grantee accomplishments, and
assess compliance with grant internal control and other requirements.
[Footnote 35] During our observation of two site visits, we noted that
USAID sent copies of these forms to grantees via e-mail in advance of
the visits so that grantees could confirm the accuracy of basic data.
- USAID reports taking initial steps to use information gathered to
identify at-risk grantees and prioritize monitoring. For example, in
May 2007, after noting poor grantee record keeping during several site
visits, the former program Director e-mailed grantees to emphasize the
need to maintain adequate documentation in their offices of labor
costs, rent expenses, and telephone costs, as well as other records
needed to demonstrate that U.S. funds were being spent for the grants'
authorized purposes. USAID also has emphasized this requirement during
quarterly grantee coordination meetings and site visits. The current
Cuba Program Director told us that, using new staff resources, she
plans to develop and implement a formal system for performing detailed
analyses of the site visit results to identify at-risk grantees and
prioritize monitoring.[Footnote 36] As a first step, the Cuba Program
recently initiated quarterly reviews of the program's portfolio of
grantees to identify at-risk grantees and other issues.
Impact of USAID's Actions to Improve Oversight Is Not Yet Evident:
Because many of USAID's actions to improve its oversight of the Cuba
democracy grants were implemented recently, in 2007 and 2008, their
impact on the risk of grantees' misusing grant funds or failing to
comply with U.S. laws and regulations is not yet evident.[Footnote 37]
In mid-June 2008, USAID's financial services contractor's review of
financial records for three Cuba Program grants found that one of the
grantees--GAD--lacked adequate support for some purchases. In late June
2008, we confirmed the USAID contractor's finding during our limited
review of financial and other records at 5 of the 10 grantees examined
for our November 2006 report (see app. I for more information about
this limited review). Specifically, we identified several cases where
substantial charges to GAD's credit card were not supported by receipts
listing the items purchased.
USAID Took Several Steps in Response to Reports of Misused Grant Funds
but Has Not Provided for Ongoing Risk Management:
In response to reports of fraud at organizations that had received the
USAID Cuba Program's two largest democracy aid grants--CFC and GAD--
USAID suspended both grants pending the results of USAID Inspector
General investigations. Additionally, in mid-July 2008, USAID decided
to accelerate planned reviews of Cuba democracy grantees' procurement
systems under the April 2008 financial review services contract and to
conduct audits of grantees' incurred cost under the Inspector General;
pending the results of those reviews and audits, USAID partially
suspended two more grants. The procurement reviews, which were
completed in August 2008, identified weaknesses at three grantees;
USAID is working with the grantees to correct these weaknesses. USAID
expects the incurred cost audits to be completed by November 2008 under
a contract with another firm.
* CFC. In March 2008, USAID suspended its $7.2 million grant to CFC,
awarded in 2005, after the CFC's Executive Director informed USAID that
the organization's former Chief of Staff had misused USAID grant funds.
[Footnote 38] CFC's grant expired on June 30, 2008, while it was
suspended. In July 2008, auditors from USAID's Contract Audit
Management Division within the Office of Acquisitions and Assistance
confirmed CFC's estimate of the amount of funds stolen[Footnote 39] and
concluded that the grantee had taken action to strengthen its system of
internal control. On September 22, 2008, USAID reinstated the grant for
6 months.
* GAD. In July 2008, USAID suspended its $10.95 million grant to GAD,
which was awarded in September 2000. On June 30, 2008, GAD's Executive
Director had informed USAID that, in following up on deficiencies that
USAID's financial services contractor and we had identified earlier
that month, he had determined that one of GAD's employees had used the
organization's credit card to make unauthorized purchases for his
personal use; the employee had signed a statement admitting to these
actions and had promised to repay the cost of these items and had been
fired.[Footnote 40] USAID suspended the grant on July 2 and referred
the matter to the USAID Inspector General for investigation; as of
November 2008, the grant remained suspended, pending conclusion of the
Inspector General's investigation and the results of a financial system
review by the financial review services contractor. The grant was
scheduled to expire on September 30, 2008, but USAID extended the grant
to March 31, 2009, to permit completion of the investigation and
review.
On July 18, 2008, USAID announced that, to determine whether financial
vulnerabilities exist at grantees and how best to address them, it
would initiate reviews of the Cuba Program grantees' procurement
systems under the April 2008 contract and subsequently conduct audits
of grantees' incurred cost under the USAID Inspector General. In
addition, USAID reported that it had partially suspended two smaller
grants pending the outcomes of the procurement reviews.[Footnote 41]
The program's other grants remained active, based on USAID's review of
the grantees' A-133 audits[Footnote 42] and other relevant information,
but pending the results of the procurement reviews and incurred cost
audits announced in July 2008.
* Reviews of grantees' procurement systems. In July 2008, USAID
instructed the financial services contractor hired in April 2008 to
accelerate planned reviews of current grantees' procurement systems.
The procurement reviews, completed in August 2008, identified internal
control, financial management, and procurement weaknesses at three
grantees. On September 24, 2008, USAID lifted one of the two partial
suspensions after the grantee agreed to take several corrective
actions. USAID is assessing whether to lift the other partial
suspension based on grantee corrective actions, a change in grantee
management, and other factors. GAD, the third grantee where the review
found weaknesses, remains suspended. As of October 2008, the
acceleration of the procurement reviews had used nearly half (about
$450,000) of the $1 million set aside for the 2-year financial services
contract signed in April. Further, USAID had not committed the
additional funds needed to continue the planned reviews of grantees'
internal controls, procurement practices, and expenditures--key
elements of the program's approach to reducing grantee risks--over the
contract's remaining 18 months.
* Audits of grantees' incurred cost. The USAID Inspector General will
oversee the audits of grantees' incurred cost, to be conducted under a
separate contract with another firm. Initial work on the first three of
these audits began in mid-September 2008; the Inspector General expects
to complete nine audits by November 2008.[Footnote 43] USAID officials
said that they would take steps, as appropriate, to address weaknesses
identified by these audits. USAID estimated the total cost of these
audits at about $300,000 to $340,000.
Table 1 summarizes the status of USAID's Cuba democracy grants as of
October 2008.
Table 1: Status of USAID Cuba Democracy Grants as of October 2008:
Grant status: Active;
Grantee, award period, and amount: Center for a Free Cuba (CFC); March
2005-2009; $7.2 million;
Comments:
* Grant was suspended in March 2008 after the Executive Director
reported employee fraud; the matter was referred to USAID Inspector
General for investigation;
* CFC placed $644,845--its estimate of the amount stolen, plus
interest--in escrow;
* Grant expired June 30, 2008;
* Financial review by USAID's Office of Acquisition and Assistance
(July 2008) confirmed CFC's estimate and found the grantee had taken
action to strengthen internal controls;
* Grant was reinstated and extended for 6 months in September 2008
after USAID Inspector General informed the agency that the
investigation did not implicate CFC;
* Incurred cost audit to be conducted now that grant is reinstated.
Grant status: Active;
Grantee, award period, and amount: Grantee A; August 2008-2010; $1.0
million;
Comments:
* New award;
* Based on a review of prior audits and other factors, USAID decided
not to include this grant in the procurement reviews or incurred cost
audits.
Grant status: Active;
Grantee, award period, and amount: Grantee B; December 2007-2009; $0.5
million;
Comments:
* Procurement review (August 2008) questioned none of $116,149 billed
from December 2007 through June 2008 and identified no internal
control, financial management system, or procurement weaknesses;
* Incurred cost audit to be completed by November 2008.
Grant status: Active;
Grantee, award period, and amount: Grantee C; March 2003-August 2010;
$0.8 million;
Comments:
* Procurement review (completed August 2008) questioned none of $29,323
billed from July 2007 through June 2008 and identified no internal
control, financial management system, or procurement weaknesses;
* Incurred cost audit to be completed by November 2008.
Grant status: Active;
Grantee, award period, and amount: Grantee D; May 2008-April 2010; $3.1
million;
Comments:
* New award;
* Based on a review of prior audits and other factors, USAID decided
not to include this grant in the procurement reviews or incurred cost
audits.
Grant status: Active;
Grantee, award period, and amount: Grantee E; August 2008-2010; $5.0
million;
Comments:
* New award;
* Based on a review of prior audits and other factors, USAID decided
not to include this grant in the procurement reviews or incurred cost
audits.
Grant status: Active;
Grantee, award period, and amount: Grantee F; March 2008-2010; $1.1
million;
Comments:
* Procurement review (August 2008) questioned $167 (less than 0.06
percent) of $300,043 billed from September 2006 through June 2008 under
current and prior grant but identified no internal control, financial
management system, or procurement weaknesses;
* Incurred cost audit to be completed by November 2008.
Grant status: Active;
Grantee, award period, and amount: Grantee G; February 2008-January
2010; $1.0 million;
Comments:
* Procurement review (August 2008) questioned none of $350,304 billed
from October 2006 through June 2008 under two grants and identified no
internal control, financial management system, or procurement
weaknesses;
* Incurred cost audit to be completed by November 2008.
Grant status: Active;
Grantee, award period, and amount: Grantee H; September 2007-March
2009; $2.7 million;
Comments:
* Procurement review (August 2008) questioned none of $1,646,257 billed
from October 2006 through June 2008 under three grants and identified
no internal control, financial management system, or procurement
weaknesses;
* Incurred cost audit to be completed by November 2008.
Grant status: Active;
Grantee, award period, and amount: Grantee I; September 2007-2009; $1.1
million;
Comments:
* Grant was partially suspended in July 2008;
* Incurred cost audit by USAID's Office of Acquisition and Assistance
(July 2008) questioned $31,658 (2.6 percent) of $1,233,663 billed from
December 2004 through December 2006 under a prior grant;
* Procurement review (August 2008) questioned $17,900 (about 5.5
percent) of $325,846 billed from September 2007 through May 2008,
identified no internal control weaknesses, but identified financial
management system and procurement weaknesses;
* Partial suspension was lifted in September 2008, after grantee
resolved cost issues and agreed to take corrective actions;
* Incurred cost audit to be conducted by November 2008.
Grant status: Active;
Grantee, award period, and amount: Grantee J; Sept 2008-2009; $0.5
million;
Comments:
* New award. (Prior grant expired June 30, 2008);
* Incurred cost audit to be conducted by November 2008.
Grant status: Partially suspended;
Grantee, award period, and amount: Grantee K; April 1999-November 2008;
$2.3 million;
Comments:
* Grant was partially suspended in July 2008;
* Incurred cost audit by USAID's Office of Acquisition and Assistance
(July 2008) questioned $1,494,996 (66.8 percent) of $2,239,590 billed
from April 1999 through December 2006;
* Procurement review (August 2008) questioned $3,515 (2.1 percent) of
$166,855 billed from April 2007 through May 2008 and identified
internal control, financial management system, and procurement
weaknesses;
* USAID Office of Acquisition and Assistance and Cuba Program is
assessing whether to lift partial suspension based on audit results,
grantee corrective actions, change in grantee management, and other
factors. (Cuba Program officials said that this grantee provides unique
capabilities);
* Incurred cost audit to be completed by November 2008.
Grant status: Suspended;
Grantee, award period, and amount: Grupo de Apoyo a la Democracia
(GAD); September 2000-March 2009; $11.0 million;
Comments:
* Grant was suspended in July 2008, after allegations of fraud, and
referred to USAID IG for investigation;
* Procurement review (August 2008) questioned $1,500,033 (about 57.9
percent) of $2,592,361 billed from January 2007 through May 2008 and
identified internal control, financial management system, and
procurement weaknesses;
* Grant scheduled to end September 30, 2008, but extended to March
2009;
* Financial system review to be completed by November 2008.
Source: GAO analysis of USAID records.
Notes:
The audits of grantee incurred cost overseen by the USIAD Inspector
General also include a grantee with a grant funded and managed by
USAID's Office of Transition Initiatives. This grant was not included
in procurement reviews funded by the Cuba Program under the Bureau for
Latin America and the Caribbean. The incurred cost audit is to be
completed by November 2008.
At USAID's request, because of the Cuban government's hostility to U.S.
democracy assistance, we have published only the names of those
grantees whose receipt of USAID funding has been publicly reported in
2008.
Award amounts for grantees D, F, H, and I include hurricane assistance.
Total amount of all grant awards shown in the table is $37.2 million.
Award amounts are rounded.
[End of table]
Conclusions:
USAID has taken numerous actions since 2006 to improve the Cuba
Program's award processes and oversight of grantees. However, some
planned actions have not yet been implemented. As recommended in our
November 2006 report, USAID took steps to improve the timeliness of
preaward reviews and resolve issues identified during those reviews and
has provided more specific guidance on permitted types of humanitarian
assistance and cost sharing. To provide resources and expertise, USAID
also contracted with a financial review services firm to follow up on
audit findings; review grantees' internal controls, procurement
practices, expenditures, and cost sharing; and provide grantees needed
technical assistance. In addition, the Cuba Program now requires
grantees to develop implementation plans and has developed a structured
approach to monitoring grantees. However, staffing of the program
office has not reached the level USAID determined is needed for
effective grant oversight and, as a result, the office has taken only
preliminary steps to implement a key part of its risk management
approach--that is, to systematically analyze site visit and other
grantee data to identify at-risk grantees and prioritize its
monitoring.
Moreover, the impact of USAID's actions to improve the Cuba Program's
risk management on grantee risk is uncertain because most of the
actions were taken recently. This uncertainty is underscored by the
recent findings--similar to those we reported in 2006--of grantees'
misusing funds and of weaknesses in grantees' internal control,
financial management, and procurement systems that have not yet been
resolved. Until the current audits of individual grantees' incurred
cost are completed and the Cuba Program takes steps to address any
known risks and prevent their recurrence, the program's ability to
ensure the appropriate use of grant funds remains in question.
Recommendations for Executive Action:
To strengthen oversight of USAID's Cuba Program grants and the
program's ability to ensure the appropriate use of grant funds, we
recommend that the USAID Administrator take the following two actions:
* ensure that the Cuba Program office is staffed at the level that is
needed to fully implement planned monitoring activities, such as the
systematic analysis of grantee data to identify at-risk grantees, and
that the agency has determined is necessary for effective oversight;
and:
* periodically assess the Cuba Program's overall efforts to address and
reduce grantee risks, particularly with regard to grantees' internal
controls, procurement practices, expenditures, and compliance with laws
and regulations.
Agency Comments and Our Evaluation:
USAID provided written comments on a draft of this report, which are
reprinted in appendix III, as well as technical comments that we
incorporated as appropriate.
In its written comments, USAID concurred with our recommendation to
staff the Cuba Program at levels needed to implement planned monitoring
activities. The agency said that it was working to ensure that the Cuba
Program has adequate staffing for strong program oversight and noted
that it had temporarily assigned three staff to the program while
implementing plans to recruit and hire additional permanent staff.
USAID also concurred with our recommendation to periodically assess the
Cuba Program's overall efforts to address and reduce grantee risk. The
agency said that the Bureau for Latin America and the Caribbean would
take specific steps to assess the risks associated with the Cuba
Program's grantee pool in its ongoing risk assessment work. USAID noted
that the bureau's assessment would incorporate results from grantee
monitoring and site visits, reviews by the financial services
contractor hired in April 2008, preaward reviews, and results from
audits by the agency's Inspector General.
We are sending copies of this report to the USAID Administrator,
appropriate congressional committees, 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) 512-3149 or gootnickd@gao.gov. Contact points for
our offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix IV.
Sincerely yours,
Signed by:
David Gootnick, Director:
International Affairs and Trade:
[End of section]
Appendix I: Scope and Methodology:
To review the actions that U.S. Agency for International Development
(USAID) has taken since 2006 to improve its award and oversight of the
Cuba Program's grants as well as actions taken in response to the
recently detected misuses of program grant funds, we analyzed USAID and
Department of State (State) records, including agendas and minutes for
meetings of USAID's Cuba project committee, draft and final changes to
agency policy and guidance, and audit and financial reports of grantee
activities. We reviewed and analyzed USAID budget, staffing, and
procurement records. With regard to staffing, for example, we analyzed
agency staffing assessments and related records; with regard to USAID
Cuba Program awards and modifications, we analyzed agency grant
documents and related records. We verified our analysis of these
records with agency officials. In June 2008, we observed two quarterly
grantee monitoring visits and one orientation visit to a grantee with a
new award conducted by Cuba Program office staff. In addition, we
conducted limited follow-up reviews of financial and other records at 5
of the 10 grantees that we had analyzed in our November 2006 report.
[Footnote 44] In conducting these follow-up reviews, we employed the
same methodology that we had used for our 2006 report.[Footnote 45] We
also reviewed audit reports issued by the State and USAID Inspectors
General in July and September 2007, respectively. We interviewed agency
officials, including the current and former Cuba Program Directors,
contracting officials, and auditors, about the actions taken in
response to our report and actions taken in response to reported misuse
of grant funds at two grantees. Additionally, we interviewed officials
from the DMP Group, to which USAID awarded a contract in April 2008 to
conduct a range of financial reviews of its Cuba Program grantees, and
we reviewed DMP's work papers and draft and final reports. We did not
examine USAID's selection of this firm or the reasonableness of the
contractor's fees.
We conducted this performance audit from May through July 2007 and from
May through November 2008, 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.
[End of section]
Appendix II: Status of USAID's Proposed and Reported Actions to Improve
Awards and Oversight for Cuba Democracy Assistance:
Table 2 summarizes our November 2006 findings and recommendations
regarding USAID's awards and oversight of democracy assistance for Cuba
as well as USAID's proposed or reported corrective actions, as of
September 2008, and our assessment of the status of these actions.
Table 2: GAO's Findings and Recommendations and USAID's Proposed or
Reported Actions and the Status of These Actions:
Awards:
GAO finding: USAID relied extensively on unsolicited proposals in
making awards;
GAO recommendation: None;
USAID proposed or reported action: Utilize competitive evaluation and
selection process for awards when possible;
Status of USAID action: In 2006-2008, USAID competitively awarded all
new Cuba democracy grants ($16 million). USAID's Cuba Program office
posted annual program statements in 2007 and 2008 to solicit grant
applications for Cuba democracy aid. USAID has made several awards
based on applications received and evaluated under the 2007 and 2008
statements. USAID plans several additional grant awards under 2008
statement; closing date for applications is Dec. 31, 2008. USAID
evaluates applications and awards grants on a "rolling" basis.
GAO finding: USAID often modified awards to increase funding and extend
completion dates;
GAO recommendation: None;
USAID proposed or reported action: Require grantees to submit interim
evaluations when requesting significant modifications or extensions;
Status of USAID action: USAID now requires grantees to submit interim
evaluations and has discontinued the use of funded extensions. In 2006-
2008, USAID did not modify funding for any Cuba awards and approved a
limited number of no cost grant extensions.
Oversight:
GAO finding: Some preaward reviews were completed after grant award;
GAO recommendation: Improve the timeliness of preaward reviews;
USAID proposed or reported action: Provide preaward review results in
writing to agreement officer prior to grant awards;
Status of USAID action: Since 2006, USAID has completed one preaward
review prior to award. In April 2008, USAID awarded a contract for
financial services to support the Cuba Program; as required, contractor
will follow up on the results of preaward reviews.
GAO finding: Some preaward reviews were completed after grant award;
GAO recommendation: Improve the timeliness of preaward reviews;
USAID proposed or reported action: Increase lead time for preaward
reviews;
Status of USAID action: The unit that performs preaward reviews is a
member of the project and internal management committees, which has
increased the lead time for the reviews.
GAO finding: USAID did not adequately follow up preaward review
findings;
GAO recommendation: Improve timeliness and scope of follow-up
procedures;
USAID proposed or reported action: Through Cuba project committee
assistance planning: ensure that any preaward or follow-on reviews are
timely and tracked until closure, and; address implementation issues,
including those identified in preaward reviews;
Status of USAID action: Cuba project committee has ensured timely
reviews for one new grant and proposed to provide funding incrementally
for an existing grant. The project committee (now the internal
management committee) is tracking the resolution of audit issues and
has made both the award and extension contingent on resolution of audit
tissues.
GAO finding: USAID did not adequately follow up preaward review
findings;
GAO recommendation: Improve timeliness and scope of follow-up
procedures;
USAID proposed or reported action: Revise grant agreement language,
linking resolution of issues and findings of preaward reviews and
follow-up reviews to obligation of incremental grantee funding;
Status of USAID action: USAID officials have agreed on a new grant
provision and used it when appropriate.
GAO finding: USAID did not adequately follow up preaward review
findings;
GAO recommendation: Improve timeliness and scope of follow-up
procedures;
USAID proposed or reported action: Issue agencywide communication by
May 2007, reinforcing Automated Directive System guidance on preaward
reviews to stress the importance of timely follow-up on review
findings;
Status of USAID action: USAID Office of Acquisition and Assistance
issued an agencywide bulletin in March 2007 that reinforced Automated
Directive System guidance on preaward reviews. This bulletin stressed
the importance of timely follow-up and resolution of deficiencies
identified in preaward reviews (Procurement Executive's Bulletin No.
2007-05).
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Require grantees to establish and maintain adequate
internal controls and develop approved implementation plans;
USAID proposed or reported action: E-mail grantees Web links to
relevant policies and procedures and provide guidance on how to access
regulatory materials;
Status of USAID action: USAID Cuba Program office sent multiple e-mails
to grantees in 2007 providing detailed guidance on how to access
regulatory materials.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Require grantees to establish and maintain adequate
internal controls and develop approved implementation plans;
USAID proposed or reported action: Review standard grant provisions by
May 2007, to ensure grantees are provided clear guidance on how to
access referenced regulatory materials;
Status of USAID action: Cuba project committee developed an addendum
for grant agreements that provides links to relevant policies and
procedures; the addendum has been provided to all grantees.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Require grantees to establish and maintain adequate
internal controls and develop approved implementation plans;
USAID proposed or reported action: Develop briefing outline for use in
future meetings with grantees reviewing new awards;
Status of USAID action: Cuba Program office developed a briefing
outline, which we observed was used to brief new grantees.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Require grantees to establish and maintain adequate
internal controls and develop approved implementation plans;
USAID proposed or reported action: Review grantees existing
implementation plans to ensure that such plans are documented and
adequate; request that grantees with significant remaining grant
funding update and expand their implementation plans;
Status of USAID action: In January 2007, the Cuba project committee
recommended reviewing grantee implementation plans and requesting that
grantees with significant remaining grant funding update and expand
their implementation plans. The Cuba Program completed this action in
May 2007; follow up on recommended changes was completed in April 2008.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Require grantees to establish and maintain adequate
internal controls and develop approved implementation plans;
USAID proposed or reported action: Include a new provision in grant
agreements to require that grantees submit written implementation,
monitoring, and evaluation plans for approval within 30 days of the
award's start date;
Status of USAID action: USAID officials have agreed on a new grant
provision, which has been included in new awards.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Require grantees to establish and maintain adequate
internal controls and develop approved implementation plans;
USAID proposed or reported action: Conduct audits of selected existing
grantees to ensure they have established and maintained adequate
internal controls;
Status of USAID action: USAID Office of Acquisition and Assistance
completed audits of two grantees, one of which identified significant
weaknesses. USAID officials are working with the grantee to correct
these weaknesses. In April 2008, USAID awarded a contract for financial
services to support Cuba Program; contractor will conduct annual
financial reviews of grantees. In July 2008, in response to reports of
fraud at two of the program's largest grantees, USAID decided to
accelerate planned procurement reviews and initiate incurred cost
audits of its Cuba democracy grantees.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Provide guidance on permitted types of humanitarian
assistance and cost-sharing and ensure that USAID staff monitors
grantee expenditures;
USAID proposed or reported action: Grantees submit lists of
humanitarian aid destined for Cuba to the program office for approval
and Office of Acquisition and Assistance concurrence. USAID reports
that these lists enhance oversight and monitoring of grantee
activities. USAID covered this topic during quarterly grantee site
visits we observed (it is an item on the visit checklist the program
now uses). USAID reviewed Department of the Treasury and Department of
Commerce license issues with grantees during the quarterly site visits
we observed (it is an item on the visit checklist the program now uses)
USAID requires grantees to provide copies of their licenses.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Provide guidance on permitted types of humanitarian
assistance and cost-sharing and ensure that USAID staff monitors
grantee expenditures;
USAID proposed or reported action: Include a new provision in grant
agreements to require that grantees include lists of humanitarian aid
destined for Cuba as part of their implementation plans;
Status of USAID action: USAID officials have agreed on a new grant
provision and used where appropriate.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Provide guidance on permitted types of humanitarian
assistance and cost-sharing and ensure that USAID staff monitors
grantee expenditures;
USAID proposed or reported action: Obtain, and submit to the Office of
Acquisition and Assistance for review, detailed cost-share records from
grantees;
Status of USAID action: As of mid-June 2008, USAID had completed its
review of grantees' cost-share contributions and had completed
resolution of most grantees' cost-share contributions.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Provide guidance on permitted types of humanitarian
assistance and cost-sharing and ensure that USAID staff monitors
grantee expenditures;
USAID proposed or reported action: Issue agencywide guidance on
allowable cost sharing;
Status of USAID action: USAID Office of Acquisition and Assistance
issued an agencywide bulletin in January 2007 that reemphasized the
restrictions and limits on cost sharing for grants and clarified NED's
status (Procurement Executive's Bulletin No. 2007-02). USAID officials
have provided similar information to agency implementing partners.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Develop and implement formal and structured
approach for site visits and other grant monitoring activities and use
these activities to provide grantees guidance and monitoring;
USAID proposed or reported action: Develop and implement a formal and
structured site visit document to capture information about grantee
activities, accomplishments, and compliance with grant requirements;
Status of USAID action: Cuba Program office has developed and
implemented a formal and structured site visit document to capture
information about grantee activities, accomplishments, and compliance
with grant requirements. USAID sends copies of these forms to grantees
via e-mail in advance of monitoring visits so grantees can verify key
project data.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Develop and implement formal and structured
approach for site visits and other grant monitoring activities and use
these activities to provide grantees guidance and monitoring;
USAID proposed or reported action: Use information gathered to identify
at-risk grantees and prioritize monitoring;
Status of USAID action: USAID reports taking initial steps to use
information gathered to identify at-risk grantees and prioritize
monitoring; more robust effort dependent on increased staffing.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Develop and implement formal and structured
approach for site visits and other grant monitoring activities and use
these activities to provide grantees guidance and monitoring;
USAID proposed or reported action: Hire two staff, one of them an
auditor, to monitor grantee activities, accomplishments, and compliance
with grant requirements;
Status of USAID action: In December 2007, USAID's Bureau for Latin
America and the Caribbean conducted a formal assessment of the USAID
Cuba Program's staffing requirements. This assessment concluded that
the office should have a Director and eight staff. Subsequent to the
December 2007 assessment, the Cuba Program office identified the need
for two more staff. Since January 2008, USAID has increased Cuba
Program office staffing from two to five people and plans to hire
additional staff in 2009.
GAO finding: USAID's Cuba Program office did not adequately monitor and
oversee grant implementation;
GAO recommendation: Develop and implement formal and structured
approach for site visits and other grant monitoring activities and use
these activities to provide grantees guidance and monitoring;
USAID proposed or reported action: Convene Cuba project committee in
June 2007 to identify at-risk grantees and prioritize monitoring and
consider grantee quarterly reports;
Status of USAID action: The project committee reviewed reports
submitted by 16 grantees for the second quarter of 2007. It found 12
reports provided sufficient narrative detail and asked 4 grantees to
resubmit more detailed reports. The project committee's analysis was
used for prioritizing oversight activities at the grantee quarterly
meeting scheduled for Aug. 1, 2007.
GAO finding: USAID guidance on closing out grants did not reflect
current practices;
GAO recommendation: None;
USAID proposed or reported action: Update agency policy on closeout
procedures;
Status of USAID action: USAID has drafted updated agency guidance on
closing out grants.
Sources: GAO-07-147 and GAO analysis of USAID records, supplemented by
interviews of key USAID officials.
[End of table]
[End of section]
Appendix III: Comments from the U.S. Agency for International
Development:
USAID:
From The American People:
November 19, 2008:
David Gootnick, Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Gootnick:
I am pleased to provide the U.S. Agency for International Development's
(USAID) formal response on the draft GAO report entitled "Foreign
Assistance: Continued Efforts Needed to Strengthen USAID's Oversight of
U.S. Democracy Assistance for Cuba" (GAO-09-165).
Thank you for acknowledging USAID's actions taken since your initial
report on the Cuba Program in November 2006. USAID has worked hard to
address the recommendations and believes the actions have strengthened
oversight of the Cuba Program.
We concur with your recommendation to staff the Cuba Program at levels
needed to fully implement planned monitoring activities for strong
program oversight. The LAC Bureau has been working to ensure
appropriate staffing. Since 2007, we have added three full-time
officers to bring the staff level from two to five. Another senior
level GS position has been added and the employee will be on board in
early December. We are currently recruiting for three additional
positions, including two Foreign Service officers. Since October and
November, we have had three officers working under temporary detail to
the Cuba program. The actions taken thus far have helped us improve our
program oversight, and we fully expect that additional staffing will
further strengthen our ability to monitor the program.
USAID has initiated measures to strengthen risk management, and the
impact of improved oversight is evident. To date, the steps we have
taken (establishment of the Cuba project committee, adding staff,
hiring a financial services contractor, conducting timely pre-award
reviews and follow-up on recommendations, providing specific guidance
to grantees on USG requirements, improving our site visit and
monitoring activities) have all been focused at managing the risk
levels of the program. It is precisely because of these additional
oversight actions that the cases of alleged fraud and questioned costs
were detected.
USAID also concurs with the need to periodically assess the Cuba
Program's overall efforts to address and reduce grantee risk. Thus, the
LAC Bureau will add specific steps to assess the risks associated with
its Cuba program grantee pool in its ongoing risk assessment work. This
assessment will incorporate results from grantee monitoring and site
visits, reviews by the financial services contractor, pre-award
reviews, and 1G audits.
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
review.
Sincerely,
Signed by:
Sean R. Mulvaney:
Assistant Administrator:
Bureau for Management:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
David Gootnick, 202-512-3149, or gootnickd@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Jeanette M. Franzel,
Director, Financial Management and Assurance; Emil Friberg, Jr.;
Michael Rohrback; Bonnie Derby; Todd M. Anderson; Sunny Chang; Lisa M.
Galvan-Treviņo; and Reid Lowe made key contributions to this report.
[End of section]
Footnotes:
[1] The Cuban Democracy Act of 1992 (Pub. L. No. 102-484) and the Cuban
Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 (Pub. L. No.
104-114) authorized the President to provide assistance and other
support for individuals and independent NGOs to promote peaceful,
nonviolent democratic change in Cuba through various types of democracy-
building efforts.
[2] Unless otherwise noted, all years cited are fiscal years (Oct. 1-
Sept. 30).
[3] This report is focused on democracy assistance provided by USAID's
Cuba Program, under the agency's Bureau for Latin America and the
Caribbean. Since 2007, USAID also has provided some Cuba democracy
assistance through its Office of Transition Initiatives.
[4] In this correspondence, "grants" includes both grant and
cooperative agreements.
[5] GAO, Foreign Assistance: U.S. Democracy Assistance for Cuba Needs
Better Management and Oversight, [hyperlink,
http://www.gao.gov/products/GAO-07-147] (Washington, D.C.: Nov. 15,
2006).
[6] Although the scope of our November 2006 report comprised USAID's
and State's support of democracy assistance for Cuba, the report's
findings and recommendations focused primarily on assistance provided
by the Cuba Program within USAID's Bureau for Latin America and the
Caribbean. A classified version of the report was published in May
2007.
[7] Our follow-up review encompassed the 5 grantees that had active
grants in June 2008. At that time, the grants for 4 of the 10 original
grantees had expired and 1 grantee had been suspended.
[8] In the grant preaward phase, potential grantees submit applications
for agency review. In the award phase, the agency identifies successful
applicants and awards funding. The implementation phase includes
payment processing, agency monitoring, and grantee reporting, which may
include financial and performance reporting. The closeout phase
includes the preparation of final reports, final reconciliation, and
any required accounting for property.
[9] An incurred cost audit involves an examination of the accounting
records and source documents that support submitted costs billed
against the grant. The examination also includes an assessment of the
grantee's internal controls, timekeeping practices, and general
operating policies.
[10] USINT in Havana delivers some assistance to independent groups and
individuals in Cuba, including assistance provided by USAID-and State-
funded grantees.
[11] Grantees of USAID's Cuba Program democracy assistance comprise
three groups: NGOs with a Cuba-specific focus, NGOs with a regional or
worldwide focus, and universities.
[12] U.S. law generally prohibits direct assistance to the Cuban
government and NGOs with links to the government or the Communist
Party.
[13] For more information about the assistance that USAID Cuba Program
grantees reported providing in 2005, see [hyperlink,
http://www.gao.gov/products/GAO-07-147], p. 20.
[14] The 2008 appropriation has been allocated among USAID's Bureau for
Latin America and the Caribbean ($22.7 million) and Office of
Transition Initiatives ($7.6 million) and two State bureaus--Democracy,
Human Rights, and Labor ($12.3 million) and Western Hemisphere Affairs
($2.8 million).
[15] The President established CAFC in October 2003 to identify (1)
ways in which the U.S. government could hasten the end of the Castro
dictatorship and (2) U.S. programs to assist the Cuba people during a
transition to democracy. The commission has issued two reports, in May
2004 and July 2006, respectively. The commission's July 2006 report
recommended providing $80 million over 2 years to increase support for
Cuban civil society, disseminate uncensored information to Cuba, expand
international awareness of conditions in Cuba, and help realize a
democratic transition in Cuba. The report also recommended subsequent
annual funding of at least $20 million until the end of the Castro
regime.
[16] See [hyperlink, http://www.gao.gov/products/GAO-07-147] for more
details. Our report also discussed the USAID Cuba Program's evaluation
of the results of U.S. democracy assistance for Cuba and communication
and coordination between the USAID Cuba Program, State, and USINT
regarding implementation of this assistance.
[17] USAID's Office of Transition Initiatives awarded a grant
noncompetitively in September 2007 in response to an unsolicited
proposal.
[18] USAID's Cuba Program implemented this competitive policy by
issuing, in March 2007 and January 2008, annual program statements
seeking grant applications. The Cuba Program made seven awards based on
applications received and evaluated under the 2007 statement, which
closed on September 30, 2007. Although the closing date for
applications under the 2008 program statement is December 31, 2008, the
Cuba Program evaluates applications and award grants throughout the
year on a "rolling" basis. According to the Cuba Program Director,
USAID may still consider, as appropriate, unsolicited proposals as
permitted by agency regulations (Automated Directives System 303)--
although the program director plans to award all 2008 grants
competitively.
[19] During this period, the program also approved administrative
modifications such as revising grant agreements to reflect updated
provisions regarding cost sharing or changes in key grantee personnel.
[20] The internal management committee--comprising USAID Cuba Program,
contracting, audit, and legal officials, as well as appropriate others-
-meets at least quarterly to coordinate and provide assistance in the
implementation of Cuba Program activities. The grantor coordination
committee--comprising officials from USAID, State, and the National
Endowment for Democracy--meets quarterly to share information and
coordinate Cuba democracy assistance activities. This committee was
established partly in response to GAO and USAID Inspector General
recommendations to improve coordination of U.S. democracy assistance
for Cuba.
[21] USAID, Office of Inspector General, Audit of USAID's Cuba Program,
Audit Report No. 9-516-07-009-P (Washington, D.C.: Sept. 25, 2007).
This report recommended that USAID conduct a formal staffing analysis
and submit written recommendations to the Assistant Administrator for
Latin American and the Caribbean.
[22] USAID, Bureau for Latin America and the Caribbean, USAID Cuba
Program: Formal Assessment of Program Staffing Needs (Washington, D.C.:
Dec. 27, 2007). The assessment states: "As identified in the [Nov.
2006] GAO report, [limited staffing in the Cuba Program contributes] to
grantee internal control weaknesses, along with USAID monitoring and
oversight deficiencies. Adequate staffing and [the] right staffing
skills mix are critical to ensuring the successful implementation of
the program together with the appropriate monitoring and oversight of
grantees and grant funds ([including the] proper use of funds,
compliance with applicable laws and regulations, [and] fulfilling
program goals)." In early April 2008, based on the December 2007 formal
assessment, the Cuba Program office recommended to the Assistant
Administrator for Latin American and the Caribbean that he approve (1)
establishing a separate Office of Cuban Affairs within the bureau
reporting to the Deputy Assistant Administrator and (2) staffing that
office consistent with the December 2007 staffing assessment. According
to USAID officials, these recommendations remain under consideration.
[23] Although the Cuba Program hired a fourth staff member based on the
December 2007 USAID assessment, this person no longer works for the
Cuba Program.
[24] The Cuba Program will pay the contract costs. The contractor is
listed in the accounting category on the General Services
Administration's Financial and Business Solutions schedule. The
contract was competed and awarded as a small business set-aside.
[25] For our 2006 assessment of the risk posed by smaller, less
experienced grantees, see [hyperlink, http://www.gao.gov/products/GAO-
07-147], pp. 34 and 43.
[26] Special reviews could include reviews of financial and regulatory
compliance; reviews to determine if costs billed by grantees and paid
by USAID were incurred in accordance with the grantee's policies,
procedures, and instructions for the covered period; and reviews of
cost sharing.
[27] USAID's Automated Directive System 302.3 defines a "grants under
contract" as a contract that provides for a USAID contractor to execute
grants with both nonprofit and for-profit NGOs.
[28] For our assessment of these risks, see [hyperlink,
http://www.gao.gov/products/GAO-07-147].
[29] USAID Office of Acquisition and Assistance, Procurement
Executive's Bulletin No. 2007-05 (Washington, D.C.: 2007).
[30] Following is the new provision included in current Cuba Program
award agreements:
"Implementation Plan: The Recipient shall develop a detailed written
implementation plan for approval by the USAID Cognizant Technical
Officer (CTO) within 30 days of award. The USAID CTO shall approve any
revisions to the Plan which involve the use of USAID funds. No USAID
funding may be used to provide financial assistance or financial
compensation to any individual or organization in Cuba. In addition,
the USAID CTO shall review and approve the evaluation of
accomplishments, and must approve any changes in the program
description contained in this Agreement. Recipients proposing to send
humanitarian items to Cuba must also include within the Implementation
Plan, a complete list of all items the recipient proposes to send to
Cuba for prior approval."
"Monitoring and Evaluation Plans: The Recipient shall develop a
detailed monitoring and evaluation plan for approval by the USAID CTO
within 30 days of award. The USAID CTO shall approve evaluation plans,
and monitoring progress toward the achievement of program objectives
during the course of the Cooperative Agreement."
[31] See [hyperlink, http://www.gao.gov/products/GAO-07-147], p. 37.
[32] See [hyperlink, http://www.gao.gov/products/GAO-07-147], p. 20,
for examples of the types of items that grantees reported providing as
humanitarian and material assistance in 2005.
[33] USAID Office of Acquisition and Assistance, Procurement
Executive's Bulletin No. 2007-02 (Washington, D.C.: 2007).
[34] According to USAID, the reduction in the grantee's cost-share
obligation reflected the agency's clarification regarding funds
obtained from the National Endowment for Democracy.
[35] The site visit form contains basic program and financial
information about the grant and grantee (updated from USAID records
prior to the visit) and instructions to review, among other things,
work plan activities, whether grantees have appropriate licenses from
the Department of the Treasury and the Department of Commerce, tax
records, and detailed support for salaries, rent, utilities, and
purchases of goods and services. The form instructs staff to compare
the grantee's budget and general ledger, verify labor contracts,
examine employee time sheets, and obtain copies of a random sample of
purchase receipts. The form also allows USAID staff to record needed
follow-up actions or support for grantees. See the USAID Cuba Program
2007 Performance Report.
[36] The former Cuba Program Director told us that he was unable to
perform detailed analyses of the site visit results after the
unexpected departure of the program's junior officer in January 2007.
[37] A July 2008 memo from USAID's Deputy Administrator for Legislative
and Public Affairs acknowledges this lack of clear impact. The memo
states, "Many of these initiatives have only recently begun
implementation and we believe that they will have a significant impact
over time."
[38] The CFC grant was suspended on March 26, 2008, after CFC's
Executive Director reported the problem. According to a USAID
memorandum, from late 2004 through January 2008, the former Chief of
Staff used companies that he controlled to sell shortwave radios to CFC
at inflated prices, pocketing the difference.
[39] Auditors from USAID's Contract Audit Management Division within
the Office of Acquisitions and Assistance reported that CFC had placed
$644,885 in escrow to be transferred to USAID; this amount included
interest lost because of the alleged fraud. As of October 2008, USAID
reported that it had recovered $578,810 in project funds and interest
of $67,992, which will be returned to the Department of the Treasury.
[40] GAD has recovered from the employee $21,433, the amount it
considers misappropriated. According to USAID, the financial services
contractor will examine this estimate during its review of GAD's
incurred cost; USAID expects the review to be completed by November
2008. USAID's Contract Audit Management Division within the Office of
Acquisitions and Assistance will review and approve the contractor's
report.
[41] On July 21, 2008, USAID wrote these grantees that "Until notified
otherwise, your organization should not commence any new activities
funded under the subject award. Additionally, only essential operating
costs may be incurred. Costs that may be considered essential to the
program include basic operating costs currently paid under the award
such as the salary of limited core employees and recurrent monthly
costs such as rent, utilities, scholarships for students currently in
the midst of USAID funded studies, etc."
[42] Office of Management and Budget Circular No. A-133, Audits of
State, Local Governments, and Non-Profit Organizations, sets standards
related to the Single Audit Act (31 U.S.C. 7501-7507), including a
requirement for organizations that expend $500,000 or more in federal
awards during the fiscal year to have a single or program-specific
audit conducted for that year, including a review of internal controls.
The Single Audit Act is intended to promote sound financial management,
including effective internal controls, for federal awards administered
by state and local governments and nonprofit organizations. See GAO-07-
147, p. 30, note 38.
[43] In addition, CFC and GAD are scheduled to receive incurred cost
audits.
[44] Our follow-up review encompassed the 5 grantees that had active
grants in June 2008. At that time, the grants for 4 of the 10 original
grantees had expired, and 1 grantee had been suspended.
[45] [hyperlink, http://www.gao.gov/products/GAO-07-147].
[End of section]
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