AFGHANISTAN

USAID Oversight of 

Assistance Funds and 

Programs 

Statement of John P. Hutton, Director

Acquisition and Sourcing Management

Charles Michael Johnson, Jr., Director

International Affairs and Trade

Testimony Before the Subcommittee on 

Oversight and Investigations, Committee 

on Foreign Affairs, House of 

Representatives

For Release on Delivery 

Expected at 2:00 p.m. EDT

Wednesday, June 6, 2012

GAO-12-802T

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-802T, a testimony 

before the Subcommittee on Oversight and 

Investigations, Committee on Foreign Affairs, 

House of Representatives 

June 6, 2012

AFGHANISTAN

USAID Oversight of Assistance Funds and Programs 

Why GAO Did This Study

Since 2002, the United States has 

appropriated nearly $90 billion to help 

stabilize Afghanistan and build the 

Afghan government’s capacity to 

provide security, enhance governance, 

and develop a sustainable economy. 

To assist Congress in its oversight, 

GAO has issued over 100 reports and 

testimonies related to U.S. efforts in 

Afghanistan, including those managed 

by USAID and the Departments of 

Defense and State. USAID provides 

assistance to Afghanistan through 

contracts and assistance instruments, 

such as grants and cooperative 

agreements, and in the form of direct 

assistance—funding provided through 

the Afghan national budget for use by 

its ministries. Direct assistance is 

provided (1) bilaterally to individual 

Afghan ministries or (2) multilaterally 

through trust funds administered by the 

World Bank and the United Nations 

Development Program. This testimony

discusses findings from GAO reports 

issued primarily in 2010 and 2011 that 

cover USAID’s (1) management of 

contracts and assistance instruments, 

(2) oversight of development-related 

program performance and results, and 

(3) accountability for direct assistance.

What GAO Recommends

GAO is not making new 

recommendations but has made 

numerous recommendations aimed at 

improving USAID’s management and 

oversight of assistance funds in 

Afghanistan. USAID has generally 

concurred with most of these 

recommendations and has taken or 

planned steps to address them.

What GAO Found

The U.S. Agency for International Development (USAID) has experienced 

systemic challenges that have hindered its ability to manage and oversee 

contracts and assistance instruments in Afghanistan. Key challenges include 

gaps in planning for the use of contractors and assistance recipients and having 

visibility into their numbers. For example, GAO reported in April 2010 that, absent

strategic planning for its use of contractors, individual offices within USAID often

made case-by-case decisions on using contractors to support contract or grant 

administration and risks, such as possible conflicts of interest, were not always 

addressed. While having reliable data on contractors and assistance recipients is 

a starting point for informing agency decisions and ensuring proper management, 

GAO has also reported on limitations in USAID’s visibility into the number and 

value of contracts and assistance instruments in Afghanistan, as well as the 

number of personnel working under them. USAID, along with other agencies, has 

not implemented GAO’s recommendation to address such limitations. USAID, 

however, has taken other actions to mitigate risks associated with awarding 

contracts and assistance instruments in Afghanistan. In June 2011, GAO

reported on USAID’s vendor vetting program, then in its early stages, which was 

designed to counter potential risks of U.S. funds being diverted to support 

criminal or insurgent activity. GAO recommended that USAID take a more riskbased approach to vet non-U.S. vendors and develop formal mechanisms to 

share vetting results with other agencies, both of which USAID agreed to do. 

GAO has found systematic weaknesses in USAID’s oversight and monitoring of 

project and program performance in Afghanistan. In 2010, GAO reported that 

USAID did not consistently follow its established performance management and 

evaluation procedures for Afghanistan agriculture and water sector projects. For 

example, only two of seven USAID-funded agricultural programs included in 

GAO’s review had targets for all their performance indicators. Moreover, the 

USAID Mission was operating without a required performance management plan. 

In addition, GAO reported on a lack of documentation of key programmatic 

decisions and an insufficient method to transfer knowledge to successors. USAID 

has taken several actions in response to these findings, such as updating its 

performance management plan and establishing mandatory guidelines on file 

maintenance to help ensure knowledge transfer. 

USAID has established and generally complied with various financial and other 

controls in its direct assistance agreements, such as requiring separate bank 

accounts and maintenance of records subject to audit. However, GAO found in 

2011 that USAID had not always assessed the financial risks in providing direct 

assistance to Afghan government entities before awarding funds. For example, 

USAID did not complete preaward risk assessments in two of eight cases of 

bilateral assistance GAO identified. With regard to direct assistance provided 

multilaterally through the World Bank’s Afghanistan Reconstruction Trust Fund 

(ARTF), GAO found in 2011 that USAID had not consistently complied with its 

own risk assessment policies, and USAID had not conducted a risk assessment 

before awarding $1.3 billion to ARTF in March 2010. In response to GAO reports, 

USAID revised and expanded its guidance on preaward risk assessments for the 

World Bank and other public international organizations.

View GAO-12-802T. For more information, 

contact John P. Hutton at (202) 512-4841 or 

huttonj@gao.gov, or Charles Michael 

Johnson, Jr. at (202) 512-7331 or 

johnsoncm@gao.gov. 
 

Page 1 GAO-12-802T 

Mr. Chairman, Ranking Member Carnahan, and

Members of the Subcommittee: 

We are pleased to be here to discuss accountability and oversight of 

funds provided by the U.S. Agency for International Development 

(USAID) to assist Afghanistan. Since 2002, the United States has 

appropriated nearly $90 billion to help secure, stabilize, and rebuild 

Afghanistan. To assist Congress in its oversight, we have issued over 100 

reports and testimonies related to U.S. efforts in Afghanistan, including 

those managed by USAID and the Departments of Defense and State.1

Our reviews have focused on the U.S. strategy for Afghanistan, as well as 

on specific U.S. efforts that build the Afghan government’s capacity to 

provide security, enhance governance, and develop a sustainable 

economy.2

Detailed information on the scope and methodology for our prior work can 

be found in the reports we have cited throughout this statement. We 

conducted the underlying performance audits in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audits to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

 While drawing on our past work that identified numerous 

challenges faced by U.S. agencies in Afghanistan, our statement today 

focuses on USAID, which, among other things, has assisted Afghanistan 

in the construction of roads, expansion of health and education, and 

development of water and agricultural sectors. Specifically, we will 

discuss findings from reports that cover USAID’s (1) management of 

contracts and assistance instruments, such as grants and cooperative 

agreements; (2) oversight of development-related program performance 

and results; and (3) accountability for direct assistance—funding provided 

through the Afghanistan national budget for use by its ministries.

 

1

See the publicly released GAO reports and testimonies on Afghanistan listed and linked 

here: http://www.gao.gov/docsearch/featured/afghanistan.html. 

2

For example, GAO, The Strategic Framework for U.S. Efforts in Afghanistan, 

GAO-10-655R (Washington, D.C.: June 15, 2010); Afghanistan Security: Department of 

Defense Effort to Train Afghan Police Relies on Contractor Personnel to Fill Skill and 

Resource Gaps, GAO-12-293R (Washington, DC: Feb. 23, 2012); Afghanistan 

Governance: Performance-Data Gaps Hinder Overall Assessment of U.S. Efforts to Build 

Financial Management Capacity, GAO-11-907 (Washington, D.C.: Sept. 20, 2011); and 

Afghanistan’s Donor Dependence, GAO-11-948R (Washington, D.C.: Sept. 20, 2011).

 
 

Page 2 GAO-12-802T 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our statement today.

USAID assists Afghanistan through the issuance of contracts and 

assistance instruments and also by providing direct assistance. Contracts 

and assistance instruments are awarded to USAID’s implementing 

partners, who in turn carry out development programs and otherwise 

support USAID’s mission in Afghanistan. For fiscal year 2011, USAID 

reported that it obligated $2.9 billion on contracts and had assistance 

instruments with a value of $705.9 million with performance in 

Afghanistan. In contrast, direct assistance is provided through the Afghan 

budget either (1) bilaterally to individual Afghan ministries or 

(2) multilaterally through trust funds administered by the World Bank and 

the United Nations Development Program. In 2010, international donors 

agreed to increase the portion of their development aid that is delivered 

through the Afghan government if the Afghan government showed 

progress in reducing corruption and strengthening its public financial 

management systems. Following that agreement, the United States 

shifted more funding toward direct assistance, more than tripling such 

awards—from $665 million in fiscal year 2009 to $2 billion in fiscal year 

2010. USAID was the largest contributor of that direct assistance, with its 

awards growing from $470 million in fiscal year 2009 to more than 

$1.4 billion in fiscal year 2010, largely through the Afghanistan 

Reconstruction Trust Fund (ARTF) administered by the World Bank. In 

2012, USAID reaffirmed its commitment to increase the amount of 

development assistance provided through the Afghan budget. 

In carrying out its Afghan assistance efforts, USAID has experienced a 

number of systemic challenges that have hindered its ability to manage 

and oversee contracts and assistance instruments, such as grants and 

cooperative agreements. These challenges include gaps in planning for 

the use of contractors and assistance recipients and having visibility into

their numbers. While this statement focuses on the challenges 

confronting USAID in Afghanistan, our work involving the Departments of 

Defense and State has found similar issues not only in Afghanistan but 

also in other countries, such as Iraq. The need for visibility into contracts 

and assistance instruments to inform decisions and perform oversight is 

critical, regardless of the agency or the country, as each agency relies 

extensively on contractors and assistance recipients to support and carry 

out its respective missions. While USAID has faced challenges, it has 

also taken actions to help mitigate some of the risks associated with 

awarding contracts and assistance instruments in Afghanistan. Most 

USAID Faces 

Challenges in 

Managing Contracts 

and Assistance 

Instruments
 

Page 3 GAO-12-802T 

notably, through its vendor vetting program, USAID seeks to counter 

potential risks of U.S. funds being diverted to support criminal or 

insurgent activity. 

Our work has identified gaps in USAID’s planning efforts related to the 

role and extent of reliance on contractors and grantees. For example, we 

reported in April 2010 that USAID’s workforce planning efforts, including 

its human capital and workforce plans, do not address the extent to which 

certain types of contractors working outside the United States should be 

used.3 We further reported in June 2010 that USAID’s workforce plan for 

fiscal years 2009 through 2013 had a number of deficiencies, such as 

lacking supporting analyses that covered the agency’s entire workforce, 

including contractors, and not containing a full assessment of the 

agency’s workforce needs, including identifying existing workforce gaps 

and staffing levels required to meet program needs and goals.4 Such 

findings are not new. We noted, for example, in our 2004 and 2005 

reviews of Afghanistan reconstruction efforts, when USAID developed its 

interim development assistance strategy, it did not incorporate information 

on the contractor and grantee resources required to implement the 

strategy. We determined that this hindered USAID’s ability to make 

informed decisions on resource allocations for the strategy.5

In the absence of strategic planning for its use of contractors, we found 

that it was often individual offices within USAID that made case-by-case 

decisions on the use of contractors to support contract or grant 

Further, as

mentioned earlier, such findings have not been unique to USAID. For 

example, in our April 2010 report, we noted that the Department of State’s 

workforce plan generally does not address the extent to which contractors 

should be used to perform specific functions, such as contract and grant 

administration.

 

3

GAO, Contingency Contracting: Improvements Needed in Management of Contractors 

Supporting Contract and Grant Administration in Iraq and Afghanistan, GAO-10-357 

(Washington, D.C.: Apr. 12, 2010).

4

GAO, Foreign Assistance: USAID Needs to Improve Its Strategic Planning to Address 

Current and Future Workforce Needs, GAO-10-496 (Washington, D.C.: June 30, 2010).

5

GAO, Afghanistan Reconstruction: Deteriorating Security and Limited Resources Have 

Impeded Progress; Improvements in U.S. Strategy Needed, GAO-04-403 (Washington, 

D.C.: June 2, 2004) and Afghanistan Reconstruction: Despite Some Progress, 

Deteriorating Security and Other Obstacles Continue to Threaten Achievement of U.S. 

Goals, GAO-05-742 (Washington, D.C.: July 28, 2005).
 

Page 4 GAO-12-802T 

administration functions. In our April 2010 report, we noted that USAID 

used contractors to help administer its contracts and grants in 

Afghanistan, in part to address frequent rotations of government 

personnel, as well as security and logistical concerns. Functions 

performed by these contractors included on-site monitoring of other 

contractors’ activities and awarding and administering grants. The 

Departments of Defense and State have also relied on contractors to 

perform similar functions in both Afghanistan and Iraq. While relying on 

contractors to perform such functions can provide benefits, we found that 

USAID did not always fully address related risks. For example, USAID did 

not always include a contract clause required by agency policy to address 

potential conflicts of interest, and USAID contracting officials generally did 

not ensure enhanced oversight in accordance with federal regulations for 

situations in which contractors provided services that closely supported 

inherently governmental functions. 

Over the last four years, we have reported on limitations in USAID’s 

visibility into the number and value of contracts and assistance 

instruments with performance in Afghanistan, as well as the number of 

personnel working under those contracts and assistance instruments. 

Having reliable, meaningful data on contractors and assistance recipients 

is a starting point for informing agency decisions and ensuring proper 

management and oversight. In 2008, in response to congressional 

direction, USAID along with the Departments of Defense and State 

designated the Synchronized Predeployment and Operational Tracker 

(SPOT) database as their system of record to track statutorily required 

information on contracts and contractor personnel working in either Iraq 

or Afghanistan, a designation which the agencies reaffirmed when the 

requirement was expanded to include assistance instruments and 

associated personnel.

6 However, we found that as of September 2011, 

SPOT still did not reliably track this information.

7

 

6

Pub. L. No. 111-84, § 813 (amending Pub. L. No. 110-181, § 864).

As a result, USAID relied 

on other data sources, which had their own limitations, to prepare a 2011 

report to Congress. Specifically, we found USAID’s reporting to be 

incomplete, particularly in the case of personnel numbers that were based 

on unreliable data. For example, for the number of contractor and 

7

GAO, Iraq and Afghanistan: DOD, State, and USAID Cannot Fully Account for Contracts, 

Assistance Instruments, and Associated Personnel, GAO-11-886 (Washington, D.C.: 

Sept. 15, 2011). 
 

Page 5 GAO-12-802T 

assistance personnel in Afghanistan, USAID developed estimates that, 

according to a USAID official, were based in part on reports submitted by 

only about 70 percent of its contractors and assistance recipients. 

Further, USAID acknowledged that it had limited ability to verify the 

accuracy or completeness of the data that were reported. Similarly, we 

found that the Department of Defense underreported the value of its 

contracts in Iraq and Afghanistan by at least $3.9 billion, while the 

Department of State did not report statutorily required information on 

assistance instruments and the number of personnel working on them in 

either country. 

Given the repeated limitations we have found in SPOT and the ability of 

USAID, Defense, and State to provide statutorily required information, we 

recommended in 2009 and then subsequently reiterated that the three 

agencies develop a joint plan with associated time frames to address 

limitations and ensure SPOT’s implementation to fulfill statutory 

requirements.8

In addition to our work on these matters, the congressionally established 

Commission on Wartime Contracting in Iraq and Afghanistan examined 

waste, fraud, abuse, accountability, and other issues in contingency 

contracting. In its final report, which was issued in August 2011, the 

Commission made a number of recommendations, several of which were 

directed toward USAID as well as the Departments of Defense and 

State.

In response to our 2009 recommendation, USAID did not 

address the recommendation, while the Departments of Defense and 

State cited on-going interagency coordination efforts as sufficient. 

However, we concluded that based on our findings, coordination alone is 

not sufficient and have continued to call for the agencies to develop a 

plan. We have recently begun reviewing the three agencies’ April 2012 

report to Congress on their contracts, assistance instruments, and 

associated personnel in Iraq and Afghanistan and the actions they are 

taking to improve their database.

9

 

8

GAO, Contingency Contracting: DOD, State, and USAID Continue to Face Challenges in 

Tracking Contractor Personnel and Contracts in Iraq and Afghanistan, 

Recommendations include those related to using risk factors to 

decide what functions are appropriate to contract for in contingency 

GAO-10-1 

(Washington, D.C.: Oct. 1, 2009).

9

Commission on Wartime Contracting in Iraq and Afghanistan, Transforming Wartime 

Contracting: Controlling Costs, Reducing Risks (Arlington, Va.: Aug. 2011). 
 

Page 6 GAO-12-802T 

settings, ensuring the government can provide sufficient acquisition 

management and contractor oversight, and taking actions to mitigate the 

threat of additional waste due to a lack of sustainment by host 

governments. We are currently reviewing what actions USAID and the 

Departments of Defense and State are taking to address the 

Commission’s recommendations. 

In response to continued congressional attention and their own concerns 

about actual and perceived corruption and its impact on U.S. and 

international activities in Afghanistan, U.S. government agencies have 

established efforts to identify malign actors, encourage transparency, and 

prevent corruption. Under the auspices of its Accountable Assistance for 

Afghanistan initiative, USAID is seeking to address some of the 

challenges associated with providing assistance in Afghanistan. One 

element of the initiative is the vendor vetting program. In January 2011, in 

order to counter potential risks of U.S. funds being diverted to support 

criminal or insurgent activity, USAID created a process for vetting 

prospective non-U.S. contractors and assistance recipients (i.e., 

implementing partners) in Afghanistan. This process is similar to the one 

USAID has used in the West Bank and Gaza since 2006. USAID’s 

process in Afghanistan was formalized in a May 2011 mission order, 

which established a vetting threshold of $150,000 and identified other risk 

factors, such as project location and type of contract or service being 

performed by the non-U.S. vendor or recipient. The mission order also 

established an Afghanistan Counter-Terrorism Team that can review and 

adjust the risk factors as needed. 

At the time our June 2011 report on vetting efforts was issued, USAID 

officials said that the agency’s vendor vetting process was still in the early 

stages, and that it would be an iterative implementation process, some 

aspects of which could change—such as the vetting threshold and the 

expansion of vetting to other non-U.S. partners.10

 

10GAO, Afghanistan: U.S. Efforts to Vet Non-U.S. Vendors Need Improvement, 

We recommended that 

USAID consider formalizing a risk-based approach that would enable it to 

identify and vet the highest-risk vendors and partners, including those 

with contracts below the $150,000 threshold. We also made a 

recommendation to promote interagency collaboration to better ensure 

that non-U.S. vendors potentially posing a risk are vetted. Specifically, we 

GAO-11-355 (Washington, D.C.: June 8, 2011).
 

Page 7 GAO-12-802T 

recommended that USAID, the Department of Defense (which had a 

vendor vetting program), and the Department of State (which did not have 

a vendor vetting program comparable to USAID’s or Defense’s) should 

consider developing formalized procedures, such as an interagency 

agreement, to ensure the continuity of communication of vetting results 

and to support intelligence information, so that other contracting activities 

may be informed by those results. USAID concurred with our 

recommendations and noted that the agency had already begun to 

implement corrective measures to ensure conformity with our 

recommendations and adherence to various statutes, regulations, and 

executive orders pertaining to terrorism. Specifically, under the May 2011 

mission order, the Afghanistan Counter-Terrorism Team is to work to 

establish an interagency decision-making body in Afghanistan to 

adjudicate vetting results, establish reporting metrics for USAID’s vetting 

process, and work with the vetting unit to modify as needed the criteria 

used to establish risk-based indicators for vetting.

We have previously reported on systematic weaknesses in USAID’s 

oversight and monitoring of the performance of projects and programs 

carried out by its implementing partners in Afghanistan. In 2010, we 

reported that USAID did not consistently follow its established 

performance management and evaluation procedures with regard to its

agriculture and water sector projects in Afghanistan.11

 

11GAO, Afghanistan Development: Enhancements to Performance Management and 

Evaluation Efforts Could Improve USAID’s Agricultural Programs, 

There were various 

areas in which the USAID Mission to Afghanistan needed to improve. We 

found that the Mission had been operating without an approved 

Performance Management Plan to guide its oversight efforts after 2008. 

In addition, while implementing partners had routinely reported on the 

progress of USAID’s programs, we found that USAID did not always 

approve the performance indicators these partners were using and did 

not ensure, as its procedures require, that implementing partners 

establish targets for each performance indicator. For example, only two of 

seven USAID-funded agricultural programs that were active during fiscal 

year 2009 and included in our review had targets for all of their indicators. 

Within the water sector, we found that USAID collected quarterly progress

GAO-10-368 

(Washington, D.C.: July 14, 2010) and Afghanistan Development: U.S. Efforts to Support 

Afghan Water Sector Increasing, but Improvements Needed in Planning and Coordination, 

GAO-11-138 (Washington, D.C.: Nov. 15, 2010).

USAID Has Taken 

Some Action to 

Strengthen Oversight 

of Program 

Performance 
 

Page 8 GAO-12-802T 

reports from five of the six water project implementers for the projects we 

reviewed, but it did not analyze and interpret this information as required. 

We also found that USAID could improve its assessment and use of 

performance data submitted by implementing partners or program 

evaluations to, among other things, help identify strengths or weaknesses 

of ongoing or completed programs. 

In addition, USAID officials face a high risk security environment and the 

USAID Mission to Afghanistan has experienced high staff turnover, which 

hinder program oversight. For example, in July 2010, we reported that the 

lack of a secure environment has challenged the ability of USAID officials 

to monitor construction and development efforts.12 Also, USAID 

personnel are assigned 1-year assignments with an option to extend 

assignments for an additional year—which USAID acknowledged 

hampered program design and implementation. The Department of 

State’s Office of the Inspector General noted in its 2010 inspection of the 

entire embassy and its staff, including USAID, that 1-year assignments 

coupled with multiple rest-and-recuperation breaks limited the 

development of expertise and contributed to a lack of continuity.13

In the absence of consistent application of its existing performance 

management and evaluation procedures and the lack of mechanisms for 

knowledge transfer, USAID programs are more vulnerable to corruption, 

waste, fraud, and abuse. In 2010, we recommended, among other things, 

that the Administrator of USAID take steps to (1) address preservation of 

institutional knowledge, (2) ensure programs have performance indicators 

and targets, and (3) consistently assess and use program data and 

evaluations to shape current programs and inform future programs.

We 

also found that a lack of documentation of key programmatic decisions 

and an insufficient method to transfer knowledge to successors had 

contributed to the loss of institutional knowledge—a challenge that we 

reported USAID should address.

 

12GAO-10-368. 

13United States Department of State and the Broadcasting Board of Governors Office of 

Inspector General, Report of Inspection: Embassy Kabul, Afghanistan, Report Number 

ISP-I-10-32A (Washington, D.C.: Feb. 2010).
 

Page 9 GAO-12-802T 

USAID concurred with these recommendations and identified several 

actions the agency is taking in Afghanistan to address them, including the 

following: 

• In 2011, USAID established mandatory technical guidance for 

program monitoring officials on how to establish and where to 

maintain files, in addition to key responsibilities of the office director to 

ensure that files are maintained before officials leave their positions.

• In 2010, USAID approved a new performance management plan for 

its agriculture programs and worked with its implementing partners to 

align their existing indicators with those in the new plan.

• In 2011, USAID delegated more authority to field program officers to 

serve as activity managers of agriculture programs, making them 

responsible for conducting regular project monitoring and reporting on 

program performance, verifying data reported by implementing 

partners, and assuring the quality of data being reported through 

regular site visits. In addition, USAID has taken steps to increase the 

use of third-party monitoring to ensure data integrity and quality. 

Risk assessments and internal controls to mitigate identified risks are key 

elements of an internal control framework to provide reasonable 

assurance that agency assets are safeguarded against fraud, waste, 

abuse, and mismanagement. Although USAID conducted preaward risk 

assessments for most of its bilateral direct assistance to the Afghan 

government, we found that USAID’s policies did not require preaward risk 

assessments in all cases. For example, we reported in 2011 that USAID 

did not complete preaward risk assessments, such as determining the 

awardees’ capability to independently manage and account for funds, in 

two of the eight cases of bilateral direct assistance.14

 

14GAO, Afghanistan: Actions Needed to Improve Accountability of U.S. Assistance to 

Afghanistan Government, 

USAID made those 

two awards after the USAID Administrator had committed to Congress in 

July 2010 that USAID would not proceed with direct assistance to an 

Afghan ministry before it had assessed the institution’s capabilities. We 

recommended that USAID update its risk assessment policies to reflect 

the USAID Administrator’s commitment to Congress. USAID has since 

GAO-11-710 (Washington, D.C.: July 20, 2011). 

USAID Has Taken 

Some Action to 

Improve

Accountability of 

Direct Assistance
 

Page 10 GAO-12-802T 

updated its policies to require preaward risk assessments for all bilateral 

direct assistance awards, periodic reassessment, and risk mitigation 

measures, as appropriate. Since October 2011, USAID has awarded 

$35 million in direct assistance funds to two Afghan ministries and, in 

compliance with its updated policies, completed risk assessments prior to 

awarding the funds in both cases. 

We also found that USAID established general financial and other 

controls in its bilateral direct assistance agreements with Afghan 

ministries, including requiring that the ministries:

• establish separate noncommingled bank accounts,

• grant USAID access rights to the bank accounts,

• have a monitoring and evaluation plan,

• comply with periodic reporting requirements, and

• maintain books and records subject to audit. 

In addition to these general financial controls, USAID is required to 

establish additional monitoring and approval controls in its direct bilateral 

assistance agreements that provide USAID funds to Afghan ministries to 

contract for goods and services.

15

With respect to direct assistance provided multilaterally through public 

international organizations such as the World Bank, USAID’s policy is to 

generally rely on the organization’s financial management, procurement, 

and audit policies and procedures. We found, however, that USAID has 

not consistently complied with its multilateral trust fund risk assessment 

USAID had agreements with two 

Afghan ministries that allowed them to contract out. However, we 

previously found that USAID did not always document its approval of 

these ministries’ procurements prior to contract execution. We 

recommended that USAID ensure compliance with the monitoring and 

approval requirements. We are now following up with USAID to ensure it 

is implementing our recommendation.

 

15These agreements provide funds to Afghan ministries to enter into contracts for goods 

and services and require USAID to monitor and approve certain steps of the procurement 

process for contracts over $250,000, as appropriate.
 

Page 11 GAO-12-802T 

policies in awarding funds to the World Bank’s ARTF. For example, in 

2011, we reported that USAID did not conduct a risk assessment before 

awarding an additional $1.3 billion to the World Bank for ARTF.16 We also 

found that USAID did not conduct preaward determinations for 16 of 

21 modifications to the original World Bank grant agreement. In response 

to our findings and a prior GAO report, USAID revised and expanded its 

guidance on preaward risk assessments for the World Bank and other

public international organizations.17

The World Bank has established financial controls over donor 

contributions to the ARTF. For example, the World Bank hired a 

monitoring agent responsible for monitoring the eligibility of salaries and 

other recurrent expenditures that the Afghan government submits for 

reimbursement against ARTF criteria. The World Bank also reports that it 

assesses projects semi-annually as part of regular World Bank 

supervision in accordance with its policies, procedures and guidelines 

based in part on project visits. However, we found examples that the 

financial controls established by the World Bank over the ARTF face 

several challenges: 

Under the revised guidance, USAID 

is required to determine the World Bank’s level of responsibility through 

consideration of several factors, including the quality of the World Bank’s 

past performance and its most recent audited financial statements.

• The World Bank and international donors have expressed concern 

over the level of ineligible expenditures submitted by the Afghan 

government for reimbursement. While ineligible expenditures are not 

reimbursed, the bank considers the level of ineligible expenditures to 

be an indicator of weaknesses in the Afghan government’s ability to 

meet agreed-upon procurement and financial management standards. 

• Afghanistan’s Control and Audit Office conducts audits of Afghan 

government programs, including those funded by the ARTF, but 

lacked qualified auditors and faced other capacity restraints, 

according to the Special Inspector General for Afghanistan 

Reconstruction and USAID. As a result, the office used international 

 

16GAO-11-710. 

17GAO, UN Office for Project Services: Management Reforms Proceeding but 

Effectiveness Not Assessed and USAID’s Oversight of Grants Has Weaknesses, 

GAO-10-168 (Washington, D.C.: Nov. 19, 2009).
 

Page 12 GAO-12-802T 

advisers and contracted auditors, funded by the World Bank, to help 

ensure that its audits of ARTF complied with international auditing 

standards. 

• Security conditions prevented Afghanistan’s Control and Audit Office 

auditors from visiting most of the provinces where ARTF funds were 

being spent. The office was able to conduct audit tests in 10 of 

Afghanistan’s 34 provinces from March 2009 to March 2010 and 

issued a qualified opinion of the financial statements of ARTF’s salary 

and other recurrent expenditures. 

Mr. Chairman, Ranking Member Carnahan, and Members of the 

Subcommittee, this concludes our statement. We would be happy to 

answer any questions you may have at this time.

For further information on this statement, please contact John P. Hutton 

at (202) 512-4841 or huttonj@gao.gov or Charles Michael Johnson, Jr. at 

(202) 512-7331 or johnsoncm@gao.gov. In addition, contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this statement. Individuals who made key contributions 

to this statement include Johana R. Ayers, Assistant Director; Tetsuo 

Miyabara, Assistant Director; Pierre Toureille, Assistant Director; Thomas 

Costa; David Dayton; Emily Gupta; Farahnaaz Khakoo-Mausel; Bruce 

Kutnick; Angie Nichols-Friedman; Mona Sehgal; and Esther Toledo.

Contacts and 

Acknowledgments

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