You are given two reports by the government agency.  

Report 1:
The U.S. government engages with the governments of other countries in the Western Hemisphere through various inter-American organizations including the OAS, PAHO, IICA, and PAIGH. According to State, the OAS is the primary inter-American political forum through which the United States engages with other countries in the Western Hemisphere to promote democracy, human rights, security, and development. PAHO serves as the Regional Office for the Americas of the World Health Organization, the United Nations agency on health. IICA supports agricultural development and rural well-being through technical cooperation and the execution of agricultural projects throughout the hemisphere. PAIGH specializes in regional cartography, geography, history, and geophysics and has facilitated the settlement of regional border disputes. According to U.S. agency officials, the organizations’ regional knowledge and technical expertise make them effective implementing partners for projects serving U.S. national interests and priorities throughout the hemisphere. Member states collectively finance these organizations by providing assessed and voluntary contributions (see table 1). For each organization, its member states’ assessed contributions are intended to finance the organization’s regular budgets, which generally cover the organization’s day-to-day operating expenses, such as facilities and salaries. Member states also finance certain OAS, PAHO, and IICA activities and projects through voluntary contributions. According to U.S. officials, the United States provides voluntary contributions to the OAS, PAHO, and IICA primarily through assistance agreements for specific projects from State, USAID, HHS, and USDA. The Institute of Internal Auditors (IIA) provides the framework for international organizations to oversee funds such as the assessed contributions provided by member states to OAS, PAHO, IICA, and PAIGH. The institute’s authoritative guidance, International Standards for the Professional Practice of Internal Auditing, includes mandatory performance standards that describe the nature of internal audit activities and provide criteria for evaluating these activities. Organizations are required to subscribe to these IIA standards, according to PAIGH officials and OAS, PAHO, and IICA documents. Assistance agreements are a critical tool the U.S. government uses to achieve important national objectives. As we have previously reported, effective oversight and internal control are important to provide reasonable assurance to federal managers and taxpayers that assistance agreements are awarded properly, recipients are eligible, and federal funds are used as intended and in accordance with applicable laws and regulations. State, USAID, HHS, and USDA oversee funds provided to OAS, PAHO, and IICA through assistance agreements using monitoring activities such as financial and performance reports. Within each of these agencies, various bureaus and offices are responsible for awarding and managing assistance agreements to these inter-American organizations, including State’s Office of Weapons Removal and Abatement in the Bureau of Political-Military Affairs, USAID’s Office of U.S. Foreign Disaster Assistance, HHS’s Centers for Disease Control and Prevention and its Food and Drug Administration, and USDA’s Animal and Plant Health Inspection Service. The documentation of these monitoring activities as called for by federal standards for internal control enables the agencies to determine the effectiveness of the agreement activity. We found that the strategic goals of the four inter-American organizations are predominantly aligned with the high-level strategic goals for the Western Hemisphere documented by State, USAID, HHS, and USDA. According to officials, the agencies all consider U.S. strategic goals when deciding which projects to fund at OAS, PAHO, and IICA. State, USAID, HHS, and USDA have goals for foreign assistance to the Western Hemisphere, as shown in table 2. For example, four of the five goals in State and USAID’s Joint Strategy correspond with goals at the OAS, IICA, and PAIGH. U.S. agencies, on an ongoing basis, evaluate each inter- American organization to ensure U.S. and organization goals are aligned. Officials from all four agencies provided examples of how they help to ensure alignment of U.S. strategic goals when funding projects at OAS, PAHO, and IICA. State: According to State officials, State created an Annual Performance and Budget Review process in 2014 specifically to review entities, such as the OAS, that receive voluntary contributions funded through the International Organization and Programs account. This process examines performance of State-funded activities relative to those activities from the previous year and the extent to which the activities advance U.S. priorities and objectives. State officials further noted that the Annual Performance and Budget Review helps inform State’s decision-making on what to include in the following year’s budget request. For example, during the 2016 review for the OAS Development Assistance Program, State reported the program’s significant activities, funds expended, and achievements such as training government officials on successful small business policies in the United States. USAID: According to USAID officials, USAID’s project design and approval policies and procedures ensure that all USAID-funded activities are linked to applicable U.S. and USAID strategies. USAID’s agency guidance requires, at a minimum, that each project or activity must be formally approved in writing by the relevant Mission Director or Principal Officer for a given program. Officials stated that this approval memo and supporting documentation address a number of planning considerations, including how the proposed activity aligns with broader strategies. Furthermore, officials stated that USAID’s lawyers review project approval documentation prior to final approval and verify that the activity complies with all applicable statutes, regulations, and policies. HHS: According to HHS officials, HHS engages with PAHO on its Biennial Work Plans, which are operational planning instruments that PAHO uses to identify activities that it can implement within each of its member states. HHS officials noted that they use PAHO’s Biennial Work Plan to strengthen U.S. approaches on issues of common concern and to advance U.S. priorities within the region. According to HHS officials, proposals for technical cooperation projects are required to correspond to one of the technical priorities in PAHO’s strategic plan for 2014–2019 and to be aligned with the HHS global strategy and U.S. priorities. USDA: USDA officials said that they compare the U.S. strategic goals with IICA’s goals and objectives when they formulate project proposals with IICA to ensure that the projects are aligned with U.S. priorities for the region. Additionally, USDA officials told us that USDA helped shape and influence IICA’s recent 10-year strategic plan, ensuring that IICA’s strategic objectives were closely aligned with U.S. strategic goals. OAS, PAHO, IICA, and PAIGH have established mechanisms for overseeing their use of assessed and voluntary contributions, such as external auditors and internal audit boards as required by IIA standards. State and USDA have directly supported these oversight mechanisms. OAS, PAHO, IICA, and PAIGH have oversight mechanisms, as shown in table 3. The four organizations follow the internal control standards of the IIA, codified in the International Standards for the Professional Practice of Internal Auditing, according to PAIGH officials and OAS, PAHO, and IICA documents. All four organizations have internal and external auditors, as required by these standards. Furthermore, OAS, PAHO, and IICA have additional oversight mechanisms, such as anti-fraud policies and program evaluation processes. The officials we interviewed from State, USAID, HHS, and USDA expressed confidence in the four organizations’ management of their assessed and voluntary contributions. All four organizations document the status of their financial and internal control activities in audit reports posted on their public websites. For example, the OAS Office of the Inspector General’s April 2017 Annual Report included an update on its five ongoing audits and investigations. The report also outlined progress made against prior recommendations. U.S. agency officials support budget and administrative subcommittees in three of the four organizations and promote the participation of U.S. experts on independent audit committees, as shown in table 4. For example, according to officials, State plays a significant role in promoting policies on oversight and accountability at the four organizations through formal engagement in deliberations and decision-making of each organization’s governing body and through informal engagement with other member states and the secretariat by recommending best practices in governance, management, and oversight. State and USDA are also directly involved in implementing some of the additional oversight mechanisms at the organizations. For example, a USDA official serves as a member of IICA’s Audit Review Committee. Additionally, an IICA official told us the United States was involved in defining IICA’s Convention and Rules of Procedure for its governing bodies, which established the requirement for internal and external auditing. According to State officials, the United States led efforts to strengthen oversight at several of the organizations under review in recent years, such as advocating for the creation of an ethics officer position at PAHO, proposing language to strengthen the authority and independence of the OAS’s Office of the Inspector General, and encouraging the creation of audit committees at both organizations. In addition, State has played a lead role in supporting the ongoing reform of the OAS administration, which includes improved oversight and accountability, according to officials from the OAS and the U.S. Mission to the OAS. We reviewed 12 selected assistance agreements that the four U.S. agencies awarded to OAS, PAHO, and IICA that were active during calendar years 2014 through 2016, and found that two agencies did not consistently include all key monitoring provisions in their agreements. While HHS and USAID implemented applicable guidance by including all key monitoring provisions in their agreements, USDA and State did not do so. USDA and State agency officials did not explain why USDA and State did not include these monitoring provisions in their agreements. However, State has since taken corrective action to ensure that they are included in future agreements, according to State officials. Applicable agency guidance calls for agencies to conduct monitoring activities as part of their oversight of their agreements. Each of the four agencies has established agency-specific guidance that outlines the monitoring activities for assistance agreements. In some cases, the agency-specific guidance may mandate additional monitoring activities beyond those called for in applicable federal regulations, such as risk assessments. For example, State’s guidance calls for the creation of a monitoring plan. Federal standards for internal control require that agencies include in agreements all key provisions delineating the parties’ responsibilities. For the 12 agreements we reviewed, the number of total key monitoring provisions per agreement varied—including within one agency—depending on when the agency issued and updated its guidance relative to when the agreements were approved. Federal standards for internal control call for agencies to document internal controls, transactions, and significant events. Specifically, internal control standards state that agency management should include internal control activities (e.g., monitoring activities) in policies or directives for transactions such as assistance agreements. For the 12 assistance agreements we reviewed, USDA and State did not include provisions implementing 6 of the 55 total (11 percent) applicable monitoring activities required by applicable guidance to carry out required monitoring activities (see table 5). State took corrective action in 2015 by issuing a standard operating procedure. USDA: USDA did not include 4 of the 13 key monitoring provisions implementing the applicable guidance for the three USDA agreements we reviewed (see table 6). Two of the agreements and supporting documentation each included all four key applicable monitoring provisions. However, Agreement 2 in the table did not include 4 of the 5 monitoring provisions in the agreement or work plan, which documents the monitoring provisions. The agreement partially included performance goals, because it included objectives for the agreement’s activities, but did not include time frames to complete all of the activities. The USDA grant official did not explain why the work plan did not adhere to applicable federal regulations when it was drafted and approved. State: State did not include 2 of the 21 key monitoring provisions implementing the applicable guidance for the three State agreements we reviewed (see table 7). Two of the agreements and supporting documentation we reviewed included the 7 monitoring provisions implementing the requirements in the applicable agency guidance. However, one agreement awarded in 2012 did not include 2 of the provisions: a risk assessment and a monitoring plan. That office that awarded this agreement took corrective action in 2015 by issuing a standard operating procedure requiring that risk assessments and monitoring plans accompany its grants and cooperative agreements. USAID: USAID included both key monitoring provisions implementing the applicable guidance for the three USAID agreements we reviewed (see table 8). USAID’s Automated Directives System 308, Standard Provisions for Cost-Type Awards to Public International Organizations contains two key monitoring provisions for agreements. USAID incorporated the monitoring provisions nearly verbatim into the agreements we reviewed, using templates from this guidance for required terms and conditions. HHS: HHS included the 15 monitoring provisions implementing the applicable guidance for the three HHS agreements we reviewed (see table 9). None of the agencies provided us with full documentation to demonstrate their adherence to the required monitoring activities called for in all of their agreements that we reviewed, including the previously mentioned key monitoring provisions that we reviewed. State and HHS have taken corrective actions to address the gaps we found in documentation for the agreements we reviewed. Agency officials told us that they use these monitoring documents, such as financial and progress reports, to inform future budgetary and programmatic decisions. Therefore, they may lack information needed to make such decisions if they do not have access to complete monitoring documentation. According to federal standards for internal control, each agency is to include key monitoring provisions as part of its agreements. In the individual assistance agreements, the agencies specify the requirements to fulfill these activities, such as requiring financial reports on a quarterly basis or including specific information in performance reports. Grants officers at times, if they deem it necessary or appropriate, include additional monitoring provisions requiring activities beyond those required by the applicable guidance, such as site visits. Federal standards for internal control call for agency management to design monitoring activities, such as financial and performance reporting, so that all transactions are completely and accurately recorded. Recording these activities maintains their relevance and value to management in controlling operations and making decisions. Without access to complete monitoring documentation, the agencies risk weakening the effectiveness of these controls. None of the four U.S. agencies had full documentation of all of the monitoring activities required by their agreements we reviewed (see table 10). The agencies did not have full documentation of monitoring activities for 9 of the 12 agreements we reviewed. For the 42 monitoring activities identified across all of the individual agreements, the four agencies did not have full documentation of 18 of the activities (43 percent). However, State took corrective action in May 2017 to address its gaps in documentation, and according to HHS officials, the Food and Drug Administration addressed its gap in documentation by implementing its agreement monitoring program in fiscal year 2018. USDA did not have full documentation of any of the 10 monitoring activities we identified (see table 11). USDA demonstrated that it had partially documented 2 of the 10 monitoring activities (20 percent) by providing us with some, but not all, quarterly performance reports. For one of the agreements, USDA had no documentation of the monitoring activities for that agreement. For its other two agreements, USDA did not have full documentation of the required monitoring activities. USDA officials did not explain why they did not have full documentation. Without full documentation of the required monitoring activities, USDA may not have the information it needs to make appropriate budgetary and programmatic decisions. USAID did not have full documentation of 2 of the 11 total monitoring activities (18 percent) we identified across the three agreements we reviewed (see table 12). USAID had partial documentation of those 2 monitoring activities. For example, USAID provided us with some, but not all, records such as financial reports required by the terms of the monitoring activities in the agreements. According to USAID officials, the agencies’ lack of complete monitoring documentation was in part due to agency officials not following some of their agency’s requirements for managing agreement documents, such as placing all documents in a shared document management system. For example, for one of the agreements we reviewed, USAID officials stated that they stored some agreement documentation electronically—such as modifications, correspondence with the agreement recipient, and quarterly financial reports—but primarily maintained paper files. USAID officials told us they use the monitoring documents of these agreements, such as financial and progress reports, to inform future budgetary and programmatic decisions. For example, according to USAID officials, USAID uses monitoring documents to identify and address potential project delays or other “red flags.” For one of the agreements we reviewed, USAID officials stated these monitoring reports also assist them in determining whether to award additional funds and establish new indicators in subsequent agreements. Without full documentation of the required monitoring activities, USAID may not have the information it needs to make appropriate budgetary and programmatic decisions. State did not have full documentation for 5 of the 16 monitoring activities (31 percent) we identified across the three agreements we reviewed (see table 13). However, State had partial documentation of 4 of those 5 monitoring activities. For example, State had some, but not all, records such as standard reporting metrics, required by the terms of the monitoring activities in one of the agreements. State did not have documentation of one of the monitoring activities (site visits). According to State officials, the agency’s lack of complete monitoring documentation was in part due to agency officials not following some of the agency’s requirements for managing agreement documents, such as placing all documents in a shared document management system. For example, according to State officials, for one of the agreements we reviewed, the grants officer mistakenly had saved site visit reports and similar documents to personal folders because the officer did not know how to use State’s grant document storage system. As a result, neither the current grants officer nor other State officials could retrieve these documents. In May 2017, after awarding the agreements we reviewed, State took corrective action by issuing the Federal Assistance Directive to establish internal guidance, policies, and procedures for all domestic and overseas grant-making bureaus, offices, and posts within the department when administering federal financial assistance. The directive notes that State implemented a grant management system for domestic and overseas grants to resolve its “significant deficiency in the management of Federal financial assistance.” In addition, the directive indicates that officials from State’s Bureau of Administration, Office of the Procurement Executive, Federal Assistance Division will evaluate compliance with risk assessment requirements and review documentation for selected agreements each fiscal year. One of the stated purposes of these reviews is to mitigate risk by strengthening management and oversight of awards, including grants. According to a State Office of Inspector General report, State should complete the full deployment of this system for overseas grants in fiscal year 2019. HHS did not have full documentation of 1 of the 5 applicable monitoring activities (20 percent) we identified across the three agreements we reviewed (see table 14). HHS had partial documentation of the semiannual progress report activity for one of its agreements, required by the terms of its agreement. HHS officials did not explain why they did not have full documentation for this monitoring activity. HHS had full documentation of all applicable monitoring activities for the other two agreements we reviewed. According to agency officials, the Food and Drug Administration, which administered one of the HHS agreements we reviewed, has taken corrective action to evaluate its agreement documentation and address deficiencies. According to HHS officials, the Food and Drug Administration developed a pilot program intended to provide an additional layer of oversight to ensure adherence to the terms of each agreement. Under the pilot, officials said, a grant monitoring specialist reviews the agreement documentation and monitoring reports to identify agreements that need additional assistance. According to HHS officials, the Food and Drug Administration implemented this program in fiscal year 2018 and will eventually include all Food and Drug Administration agreements. U.S. assistance agreements for projects with inter-American organizations further U.S. strategic goals in the Western Hemisphere, but State, HHS, USAID, and USDA did not consistently include all key monitoring provisions as part of their assistance agreements or demonstrate that they had full documentation of monitoring activities for the agreements we reviewed. Of these four agencies, USAID and USDA have not taken corrective actions. Monitoring the implementation of U.S. assistance agreements and fully documenting the results of such monitoring are key management controls to help ensure that U.S. agreement recipients use federal funds appropriately and effectively. The agencies risk weakening the effectiveness of these controls by not including all key monitoring provisions called for by applicable agency guidance. Further, if the agencies do not have full documentation of the agreements’ required monitoring activities, they may not be able to effectively manage federally funded projects that support U.S. strategic goals. In addition, agencies may not have all the information they need to make budgetary and programmatic decisions. We are making a total of three recommendations: one to USAID and two to USDA. The USAID Administrator should ensure that USAID officials have full documentation of required monitoring activities in agreements with inter- American organizations. (Recommendation 1) The Secretary of Agriculture should ensure that USDA includes all key monitoring provisions specified by applicable guidance as part of agreements with inter-American organizations. (Recommendation 2) The Secretary of Agriculture should ensure that USDA officials have full documentation of required monitoring activities in agreements with inter- American organizations. (Recommendation 3) We provided a draft of this report for comment to State, USAID, HHS, and USDA. USDA concurred with our recommendations in an e-mail. In its written comments, reproduced in appendix IV, USAID stated that it has policies, procedures, and training in place for the officials who manage these agreements. In response to our recommendations, USAID stated that it will issue an agency notice to remind all such officials of these responsibilities, including the requirement to maintain complete files for each agreement. State and HHS did not provide formal comments. They did provide technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of the U.S. Agency for International Development, the Secretary of Health and Human Services, and the Secretary of Agriculture. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-9601, or melitot@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 key contributions to this report are listed in appendix V. Congressional requesters asked us to review several issues related to the Organization of American States (OAS), the Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA), and the Pan-American Institute of Geography and History (PAIGH). In this report, we (1) assess the extent to which the organizations’ strategic goals align with those of U.S. agencies; (2) examine how the organizations oversee the use of their funds and the extent to which U.S. agencies have supported those efforts; (3) assess the extent to which U.S. agencies included key monitoring provisions as part of their assistance agreements; and (4) assess the extent to which U.S. agencies had documentation of monitoring activities, including those called for by these provisions. To address the first objective, we gathered documentation and interviewed officials from the four U.S. agencies and the four organizations to determine the U.S. strategic goals for foreign assistance to the Western Hemisphere and the goals of the four organizations. According to Department of State (State) and U.S. Agency for International Development (USAID) officials, the strategic document that underpins their foreign assistance priorities for the region is The Department of State’s Bureau of Western Hemisphere Affairs’ and USAID’s Bureau for Latin American and Caribbean Affairs’ Joint Regional Strategy. Department of Health and Human Services (HHS) officials said that HHS’s relevant strategic document is The Global Strategy of the U.S. Department of Health and Human Services. U.S. Department of Agriculture’s (USDA) strategic goals for foreign assistance, according to officials, are outlined in the United States Department of Agriculture Strategic Plan FY2015–2018. The OAS outlined its strategic goals in the Comprehensive Strategic Plan of the Organization, adopted on October 31, 2016. PAHO’s goals are laid out in Strategic Plan of the Pan American Health Organization 2014–2019. IICA’s strategic document is the IICA 2010–2020 Strategic Plan, which took effect in October 2010. PAIGH’s strategic document is the Declaration and Guide for the Pan American Agenda 2010-2020. We compared the strategic goals articulated by the four organizations against U.S. strategic goals to assess the extent to which the organizations’ goals contribute to U.S. interests in the region. We then interviewed officials from the four agencies and reviewed relevant documentation on efforts they undertake to ensure that U.S.-funded activities align with U.S. strategic goals. To address the second objective, we reviewed documentation of the organizations’ internal control mechanisms and confirmed our findings with the organizations. We identified mechanisms to include policies, directives, rules, practices, and organizational structures that can have an oversight role in the use of the organizations’ funds. We also interviewed officials from State, USAID, HHS, and USDA to discuss their support of these mechanisms. To address the third objective, we identified 60 active assistance agreements that these agencies oversaw with OAS, PAHO, and IICA during calendar years 2014 through 2016 and selected a nongeneralizable sample of 12 agreements, three each from State, USAID, HHS, and USDA. To determine which agreements we would review for each agency, we selected the three agreements with the lowest, median, and highest dollar value. If any of an agency’s agreements supported the same country or activity or were for one-time projects such as seminars, we selected the next appropriate agreement based on dollar value. For these selected agreements, we then identified the applicable agency guidance for monitoring activities in the agreements, which we define as all documents related to each agreement provided to us by the agencies, such as monitoring reports. The number of key monitoring provisions varied—even within each agency—depending on when agency guidance was issued and updated relative to when the agreements were approved. USDA did not have applicable internal agency-specific guidance for monitoring of assistance agreements at the time it awarded the agreements we reviewed; thus, with USDA’s input, we used the applicable sections of the Code of Federal Regulations, which together have five key monitoring provisions for agreements. However, USDA approved two of the agreements in 2012 and the third agreement in 2016, and this third agreement was subject to an amended version of the Code of Federal Regulations, which added an additional provision for performance goals. State’s four applicable grants policy directives have seven key monitoring provisions for agreements that were applicable at the time the agreements we reviewed were approved. USAID’s Standard Provisions for Cost-Type Awards to Public International Organizations (PIOs): A Mandatory Reference to ADS Chapter 308 has two key monitoring provisions for agreements: audits and records, and the organization’s adherence to their rules. HHS’s grants policy has five key monitoring provisions for grant documentation. We identified key monitoring provisions for agencies to include as part of agreements to ensure oversight of the use of funds, such as financial and progress reports. For the 12 agreements in our sample, we analyzed the assistance agreements from the four agencies, and then determined the extent to which the agencies’ agreements included key monitoring provisions implementing monitoring activities called for by applicable agency guidance. We did not include subsequent amendments to these 12 agreements in our review of key monitoring provisions. We interviewed officials from State, USAID, HHS, and USDA (1) to confirm we were applying the appropriate federal or agency guidance and (2) to discuss instances in which the agreements did not include key monitoring provisions. To address the fourth objective, we reviewed the 12 selected assistance agreements and guidance to identify specific required monitoring activities, such as financial and program reports, site visits, and other forms of oversight. The agreements specify the requirements for these activities such as requiring financial reports on a quarterly basis. For these 12 agreements, we reviewed all the documentation provided to us by the agencies, then determined the extent to which the agencies had full documentation of key monitoring activities as specified in the assistance agreements, including those called for by key monitoring provisions, as well as those called for by guidance when the monitoring provisions were absent. We did not include subsequent amendments to these 12 agreements in our review of monitoring activities. We interviewed officials from State, USAID, HHS, and USDA to discuss instances in which the agency did not have full documentation of key monitoring activities. We also discussed how State, USAID, and HHS agency officials manage their agreement documentation and use the information in the agreements’ required monitoring documentation. We conducted this performance audit from July 2016 to December 2017 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. The Organization of American States (OAS), Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA), and the Pan-American Institute on Geography and History (PAIGH) have established mechanisms for overseeing their use of funds. Tables 15–18 show the mechanisms (oversight policies and oversight committees and organizations) for each of these inter-American organizations, as confirmed by the organizations’ officials. To oversee the execution of their agreements, the Department of State (State), the U.S. Agency for International Development (USAID), the Department of Health and Human Services (HHS), and U.S. Department of Agriculture (USDA) are to conduct monitoring activities called for by applicable federal regulations or agency guidance and document these provisions in assistance agreements as called for by federal standards for internal control. We identified key monitoring provisions implementing the applicable agency guidance for State, USAID, HHS, and the applicable regulations for USDA, as shown in table 19. For both the agency guidance and the federal regulations, those listed are the ones that were in effect when the agreements in our sample were approved. Some of the agency guidance and regulations have since been amended or superseded. In addition to the contact named above, Pierre Toureille (Assistant Director), Julia Jebo Grant (Analyst-in-Charge), Leslie Stubbs, and Paul Sturm, Alana Miller, and Shirley Min made key contributions to this report. In addition, David Dayton, Martin de Alteriis, Neil Doherty, Jeff Isaacs, and Alex Welsh provided technical assistance.

 

 Report 2:
The rise of e-commerce has contributed to a fundamental change in the market for counterfeit goods, according to our analysis of documents from CBP, ICE, and international organizations and our interviews with CBP and ICE officials. U.S. agencies and international organizations have observed a shift in the sale of counterfeit goods from “underground” or secondary markets, such as flea markets or sidewalk vendors, to primary markets, including e-commerce websites, corporate and government supply chains, and traditional retail stores. Whereas secondary markets are often characterized by consumers who are knowingly purchasing counterfeits, primary markets involve counterfeiters who try to deceive consumers into purchasing goods they believe are authentic. This shift has been accompanied by changes in the ways in which counterfeit goods are sold. In the past, consumers could often rely on indicators such as the location of sale or the goods’ appearance or price to identify counterfeit goods in the marketplace. However, counterfeiters have now adopted new ways to deceive consumers. For example, as consumers increasingly purchase goods online, counterfeiters may exploit third-party online marketplaces to gain an appearance of legitimacy and access to consumers. When selling online, counterfeiters may post pictures of authentic goods on the websites where they are selling counterfeits and may post pseudonymous reviews of their products or businesses in order to appear legitimate. Additionally, by setting the price of a counterfeit at, or close to, the retail price of a genuine good, counterfeiters may deceive consumers, who will pay the higher price because they believe the goods are real or who believe that they are getting a slight bargain on genuine goods. According to CBP seizure data and CBP officials, the volume, variety, and methods of shipment of counterfeit goods seized by CBP and ICE have changed in recent years. CBP reports indicate that the number of IPR seizures increased by 38 percent in fiscal years 2012 through 2016. According to CBP data, approximately 88 percent of IPR seizures made during this period were shipped from China and Hong Kong. The variety of products being counterfeited has also increased, according to CBP officials. CBP and ICE officials noted that, while many consumers may think of luxury handbags or watches as the most commonly counterfeited goods, counterfeiting occurs in nearly every industry and across a broad range of products. In addition, according to CBP data we reviewed and officials we spoke to, the methods of importing counterfeit goods into the United States have changed in recent years. Specifically, express carriers and international mail have become the predominant form of transportation for IPR-infringing goods entering the United States, constituting approximately 90 percent of all IPR seizures in fiscal years 2015 and 2016, according to CBP data. In an attempt to illustrate the risk that consumers may unknowingly encounter counterfeit products online, we purchased a nongeneralizable sample of four types of consumer products—shoes, travel mugs, cosmetics, and phone chargers—from third-party sellers on five popular e-commerce websites. According to CBP data we reviewed and officials we spoke to, CBP often seizes IPR-infringing counterfeits of these types of products. As table 1 shows, the rights holders for the four selected products we purchased determined that 20 of the 47 items were counterfeit. We did not identify any clear reasons for the variation among the counterfeit and authentic items that we purchased based on the products that they represented, the e-commerce websites where we bought the items, or the third-party sellers from whom we bought them. For three of the four product types, at least one item we purchased was determined to be counterfeit, with results varying considerably by product. Representatives of the rights holders also could not provide a specific explanation for the variation among authentic and counterfeit goods that we received. They noted that the results of covert test purchases can fluctuate depending on enforcement activities and the variety of goods and sellers on a particular website on a given day. Rights-holder testing also showed that we purchased at least one counterfeit item and one authentic item from each of the five e-commerce websites. In addition, our analysis of the customer ratings of third-party sellers from whom we bought the items did not provide any clear indications that could warn consumers that a product marketed online may be counterfeit. For example, we received both counterfeit and authentic items from third- party sellers with ratings that were less than 70 percent positive as well as sellers with ratings that were up to 100 percent positive. Rights holders were able to determine that items we purchased were not authentic on the basis of inferior quality, incorrect markings or construction, and incorrect labeling. Some counterfeit items we purchased were easily identifiable as likely counterfeit once we received them. For example, one item contained misspellings of “Austin, TX” and “Made in China.” Other items could be more difficult for a typical consumer to identify as counterfeit. For example, the rights holder for a cosmetic product we purchased identified one counterfeit item on the basis of discrepancies in the color, composition, and design of the authentic and counterfeit items’ packaging. Counterfeit goods may also lack key elements of certification markings and other identifiers. For example, on a counterfeit phone charger we purchased, the UL certification mark did not include all components of the authentic mark. Figure 1 shows examples of these counterfeit items. The risks associated with the types of counterfeit goods we purchased can extend beyond the infringement of a company’s IPR. For example, a UL investigation of counterfeit iPhone adapters found a 99 percent failure rate in 400 counterfeit adapters tested for safety, fire, and shock hazards and found that 12 of the adapters tested posed a risk of lethal electrocution to the user. Similarly, according to a rights holder representative, counterfeits of common consumer goods, such as Yeti travel mugs, may contain higher-than-approved concentrations of dangerous chemicals such as lead, posing health risks to consumers. According to ICE, seized counterfeit cosmetics have been found to contain hazardous substances, including cyanide, arsenic, mercury, lead, urine, and rat droppings. Representatives of rights holders and e-commerce websites whom we interviewed reported taking independent action to try to protect IPR within their areas of responsibility. For example, both rights holders and e- commerce websites maintain IPR protection teams that work with one another and with law enforcement to address infringement issues. E- commerce websites may also take a variety of steps to block and remove counterfeit items listed by third-party sellers. These efforts rely on data collected through a variety of means, including consumer reporting of counterfeits, rights-holder notifications of IPR infringement, and corporate efforts to vet potential third-party sellers, according to private sector representatives. Our January 2018 report includes information on steps that consumer protection organizations and government agencies recommend consumers take to limit the risk of purchasing counterfeits online. These steps include, for example, buying only from authorized retailers online, avoiding prices that look “too good to be true,” and reporting counterfeit purchases. We identified a number of key challenges that the changes in the market for counterfeit goods can pose to CBP and ICE as well as to the private sector. First, the increasing sophistication of counterfeits can make it difficult for law enforcement officers to distinguish between legitimate and counterfeit goods. Second, as the range of counterfeit goods expands, CBP has a wider variety of goods to screen, which requires CBP officials to have in-depth knowledge of a broad range of products and of how to identify counterfeits. Third, counterfeiters may break up large shipments into multiple smaller express carrier or mail packages to decrease the risk of losing significant quantities of merchandise to a single seizure. This shift toward smaller express shipments of counterfeit goods to the United States poses challenges to CBP and ICE because, according to CBP officials, seizure processing requires roughly the same amount of time and resources regardless of shipment size or value. The changing marketplace also presents challenges to the private sector, according to representatives from rights holders and e-commerce websites. For example, it is more difficult for rights holders and e- commerce websites to identify and investigate individual counterfeit cases, because e-commerce websites face a growing inventory from a larger registry of sellers. Tracking goods from known counterfeiters through various website fulfillment and delivery mechanisms is also a significant challenge for the private sector. Furthermore, the growth of e- commerce has accelerated the pace at which counterfeiters can gain access to consumers or reinvent themselves if shut down. CBP and ICE engage in a number of activities to enhance IPR enforcement; however, while ICE has assessed some of its efforts, CBP has taken limited steps to do so. CBP’s and ICE’s IPR enforcement activities broadly include detecting imports of potentially IPR-infringing goods, conducting special operations at U.S. ports, engaging with international partners, and undertaking localized pilot programs or port- led initiatives. CBP and ICE have collected some performance data on activities we reviewed, and ICE has taken some steps to better understand the impact of its efforts, such as creating a process to track cases it deems significant. However, we found that CBP has conducted limited evaluation of its efforts to enhance IPR enforcement. Consequently, we concluded that CBP may lack information needed to ensure it is investing its resources in the most efficient and effective activities. We recommended in our report that CBP take steps to evaluate the effectiveness of its IPR enforcement efforts; CBP concurred with this recommendation. Our analysis showed that CBP and ICE interagency collaboration on IPR enforcement is generally consistent with the following selected key practices for effective interagency collaboration: (1) define and articulate a common outcome; (2) establish mutually reinforcing or joint strategies; (3) identify and address needs by leveraging resources; (4) agree on roles and responsibilities; and (5) establish compatible policies, procedures, and other means to operate across agency boundaries. For example, the agencies may leverage resources by collocating staff or sharing their expertise. CBP and ICE have also issued guidance and developed standard operating procedures to clarify roles and responsibilities. CBP and ICE also coordinate with the private sector in a variety of ways, such as obtaining private sector assistance to determine whether detained goods are authentic and to conduct training. Representatives of rights holders and e-commerce websites noted that information shared by law enforcement entities is critical to private sector IPR enforcement, such as pursuing civil action against a counterfeiter or removing counterfeit items from websites. In the Trade Facilitation and Trade Enforcement Act of 2015, Congress provided CBP with explicit authority to share certain information with trademark and copyright owners before completing a seizure. CBP officials stated that they share information about identified counterfeits with e-commerce websites and rights holders to the extent possible under current regulations. However, according to private sector representatives we spoke to, restrictions on the amount and type of information about seized items shared by CBP limit the ability of rights holders and e-commerce websites to protect IPR. CBP officials noted that there are legal limitations to the amount and type of information they can share, particularly if the e-commerce website is not listed as the importer on forms submitted to CBP. Several private sector representatives stated that receiving additional information from CBP would enhance their ability to protect IPR. Representatives of one website noted that information on the exterior of seized packages, such as business identifiers on packages destined for distribution centers, would be helpful for identifying groups of counterfeit merchandise from the same seller. However, according to CBP officials, CBP cannot provide such information to e-commerce websites. Representatives of one e-commerce website noted that ICE sometimes shares information related to an investigation, but that ICE’s involvement in the enforcement process begins only after CBP has identified and seized counterfeit items. Representatives of two e-commerce websites stated that, because of the limited information shared by CBP, they may not be aware of IPR-infringing goods offered for sale on their websites, even if CBP has seized related items from the same seller. According to CBP officials, CBP is reviewing options for sharing additional information with rights holders and e-commerce websites and is assessing what, if any, additional information would be beneficial to share with private sector entities. CBP officials stated that they have not yet determined whether changes to the amount and types of information provided to e-commerce websites would require regulatory changes or additional legal authorities. These officials also said that they have discussed differences in CBP’s and ICE’s information sharing with ICE officials. In our report, we recommended that CBP, in consultation with ICE, assess what, if any, additional information would be beneficial to share with the private sector and, as appropriate, take action to enhance information sharing where possible. CBP concurred with this recommendation. Chairman Hatch, Ranking Member Wyden, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. If you or your staff have any questions about this testimony, please contact Kimberly Gianopoulos, Director, International Affairs and Trade, at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Joyee Dasgupta, Kara Marshall, Katie Bassion, Kristen Timko, Reid Lowe, Sarah Collins, Neil Doherty, Ramon Rodriguez, Helina Wong, Julie Spetz, Kevin Loh, Wayne McElrath, Grace Lui, James Murphy, Mary Moutsos, Justin Fisher, Rachel Stoiko, and Sarah Veale. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Question: Write a one-page summary of the report 1.

Answer: The United States is a member of the OAS, PAHO, IICA, and PAIGH, which promote democracy, health care, agricultural development, and scientific exchange. GAO was asked to review U.S. assistance to these four organizations. In this report, GAO (1) assesses the extent to which the organizations' strategic goals align with those of U.S. agencies; (2) examines how the organizations oversee the use of their funds and the extent to which U.S. agencies have supported those efforts; (3) assesses the extent to which U.S. agencies included key monitoring provisions as part of assistance agreements; and (4) assesses the extent to which U.S. agencies had documentation of monitoring activities, including those called for by these provisions. GAO analyzed documents and interviewed officials from State, USAID, HHS, USDA, and the organizations. GAO also analyzed a nongeneralizable sample of 12 of the 60 assistance agreements that were awarded by State, USAID, HHS, and USDA to OAS, PAHO, and IICA and were active during calendar years 2014 through 2016. For each agency, GAO selected three agreements with the lowest, median, and highest dollar value. GAO found that strategic goals of the Organization of American States (OAS), the Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA), and the Pan-American Institute of Geography and History (PAIGH) are predominantly aligned with the strategic goals of the Department of State (State), the U.S. Agency for International Development (USAID), the Department of Health and Human Services (HHS), and the U.S. Department of Agriculture (USDA). For example, IICA's strategic goals of a productive agricultural sector, enhancing agricultural development, and food security are aligned with USDA's foreign assistance goals. State, USAID, HHS, and USDA fund activities in the form of assistance agreements (e.g., grants and cooperative agreements) with OAS, PAHO, and IICA, which in 2016 totaled $32 million. According to agency officials, the agencies employ mechanisms to ensure that these agreements align with U.S. strategic goals. OAS, PAHO, IICA, and PAIGH have established mechanisms for overseeing their use of funds, such as external auditors, internal audit boards, and anti-fraud and ethics policies. State and USDA have directly supported these mechanisms. For example, State engaged in the selection process for OAS's Inspector General. GAO's review of 12 selected assistance agreements found that USDA included no financial or performance monitoring provisions in one of its agreements and that State did not include two key monitoring provisions in one of its agreements, called for by applicable guidance. GAO found that the remaining 10 agreements it reviewed contained all key monitoring provisions and that State has since taken corrective action. GAO found that U.S. agencies did not have full documentation of 18 of the 42 monitoring activities required by the 12 assistance agreements GAO reviewed (see table). For example, USDA did not have full documentation, such as for financial reports, of any of its 10 required monitoring activities and USDA officials did not explain their lack of documentation. USAID officials explained that their lack of full documentation was due, in part, to grant officers not always following their document management policies. State and HHS have since taken corrective action. If an agency does not have full documentation of monitoring activities, it may lack information needed to make appropriate budgetary and programmatic decisions. GAO recommends that (1) USDA ensure inclusion of all monitoring provisions as part of agreements and (2) USAID and USDA ensure full documentation of monitoring activities. USDA and USAID concurred with GAO's recommendations.