OVERSIGHT OF ASSISTANCE PROGRAMS IN IRAQ AND AFGHANISTAN

BY

USAID’s OFFICE OF INSPECTOR GENERAL

FEBRUARY 2, 2009

Good afternoon. I am pleased to appear before the Commission to

testify on behalf of the Office of Inspector General (OIG) for the U.S.Agency for International Development (USAID). Today, I would like todescribe OIG’s oversight activities in Iraq and Afghanistan and share with

the Commission the challenges we see for development activities in thosecountries.

Background

Reconstruction and development efforts in Afghanistan and Iraq have

been difficult. Oversight of these efforts has been difficult, too. USAIDemployees and OIG auditors and investigators have been operating in what
programs in Iraq and Afghanistan, including OlG oversight. In fact, OlG’s

first Afghanistan report, issued in March 2003, cited security as the

overriding risk confronting USAID’s ability to manage its assistance

activities. In addition to causing operating and program costs to increase,

the lack of security imposes significant constraints on USAID’s ability to

monitor its programs. USAID officials are unable to make routine site visits,

and their official counterparts are often reluctant to be seen meeting with

Americans. Normal branding procedures (e.g., ensuring that USAID’s logo

is readily visible at project sites and on delivered commodities) are

sometimes bypassed in order to protect the implementers and the

beneficiaries. USAID-funded vehicles have been damaged or destroyed by

insurgents, and implementing partners and host country officials have been

the targets of threats, kidnappings, and murders.

For QIG, travel restrictions and security concerns severely limit our

ability to conduct routine audit and investigative work. Trips must be

cleared through Embassy personnel in advance, armored vehicles orarmed guards must accompany us on assignments, and travel can be

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We are fortunate, however, to have employees who are willing to

work under such onerous circumstances to assist USAID in its efforts to

advance U.S. foreign policy and to build the capacity of the Governments of

Afghanistan and Iraq to deliver essential services, strengthen their

economies, and promote the rule of law and civil rights.

OIG has been able to conduct substantive oversight with a relatively

small investment from U.S. taxpayers. Since 2003, OlG has expended

approximately $18 million to oversee the more than $14 billion obligated for

USAID activities in Afghanistan and Iraq. Our oversight work has

paralleled the evolution of USAID’s programs in Afghanistan and Iraq from

relief and stabilization to reconstruction to sustainable development.

In both countries, we are pursuing a vigorous program of

performance audits that cover most major USAID projects. In addition, weperform an annual audit of USAID’s financial statements, which includes

the financial operations of development projects in Iraq and Afghanistan.

We also oversee an extensive program of financial audits of majorcontractors and grantees carrying out work for USAID in these countries.

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Today I would like to discuss the audit and investigative work that

QIG is doing in Afghanistan and Iraq, and I will give some examples of the

problems we have identified, as well as some examples of changes that

have been made as the result of our work. I will also talk about how

improved processes can benefit USAID’s development efforts in the future.

Afghanistan

OIG has been providing audit and investigative oversight in

Afghanistan since the start of USAID’s programs in 2002. Currently, OlG

oversight in Afghanistan is managed by our regional office in Manila, with

auditors continually traveling to Afghanistan on 3-week temporary duty

assignments. We have 14 auditor and investigator positions to cover all of

USAID’s activities in Asia—including those in Afghanistan. Beginning this

summer, QIG will have two auditors assigned full time in Kabul.

To date in Afghanistan, we have conducted 25 performance audits

resulting in 68 recommendations, and we have issued 26 financial audits.

This work has caused over $1 million in questioned costs to be sustained.

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Afghanistan, 50 of our 68 recommendations have been implemented, and

.29 of the 68 (43 percent) were closed by the time we issued our audit

report. There are no open audit recommendations that are more than a

year old. Recommendations that have yet to be addressed generally

include working with host government organizations to ensure sustainability

of programs, collecting questioned costs, ensuring that construction

projects comply with environmental regulations, developing appropriate

performance indicators for USAID programs, and putting automated

systems in place for financial and program tracking. USAID is working

toward final action in each of these instances.

Because OIG was active in Afghanistan even before the war in Iraq

began, we learned some lessons in Afghanistan that we then applied to

Iraq—a perspective somewhat different from that of some of our

counterpart agencies. One such lesson is that audit oversight in high-risk

situations needs to be planned at the outset of program implementation

and carried out at the appropriate time. This is particularly true for financialaudits. Conducting financial audits as program money is spent prevents

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grantees learn very early that OlG wants to see supportable costs that are

reasonable and allowable under the contract or grant.

At the very start of USAID/Afghanistan’s Rehabilitation of Economic

Facilities and Services Program—a $700 million effort to promote economic

recovery and political stability by repairing infrastructure—OIG instituted a

course of continual financial audits of what was then the largest and

riskiest USAID contract in the country. Our purpose was to identify

problems early in the program. The course of audits consisted of recurring

reviews of costs incurred by the contractors in Afghanistan and in the

United States. Over $4.4 million in costs were questioned, and over

$620,000 of questioned costs were sustained.

In a more specific example of program improvement as the result of

OIG involvement, we made recommendations in our audit of the Maria

Ruzicka War Victims Fund that would directly assist Iraqi civilians harmed

by military operations. This fund was established to assist Iraqi people

injured by U.S. or Coalition Forces. We compared implementation

practices in a similar program in Afghanistan and found that the eligibility of

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requirements. The mission in Iraq subsequently expanded therequirements to match those of USAID/Afghanistan, covering civilians

harmed by insurgents and allowing more citizens to receive benefits.

In Afghanistan, we have seen many instances in which the

inadequate oversight of contracts and program activities hindered USAID’s

development efforts. In addition, lack of documentation of results or faultydata prevented our auditors from determining whether projects had been

successful. Specific problems included incomplete performance plans and

monitoring reports as well as questionable sustainability of projects.

As an example of oversight problems, OIG’s February 2007 audit of

USAID/Afghanistan’s Alternative Livelihoods Program in the Eastern

Region of Afghanistan reported that the program could have been more

successful had the program started when originally planned and had

contracting issues been quickly resolved. The program had missed the

opportunity to persuade more Afghans not to plant opium poppies in the

winter of 2005 because the implementing contractor had not begun the

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program had not delivered $1.6 million in anticipated microfinance loans

intended to provide about 8,000 Afghans with alternatives to growing

poppies. The mission had used an existing General Services

Administration contract that did not allow the contractor to provide loancapital through grants. When the mission learned that the contract could

not be used for that purpose, it investigated alternative approaches. Those

approaches included awarding a separate cooperative agreement or trying

to provide loan capital through grants via the contract. Neither of these twoapproaches proved feasible in the short run, and in the end, the missionchanged its strategy from funding microfinance loans to merely facilitating

them.

Similarly, an audit of the Accelerating Sustainable Agriculture Program

in 2008 identified several management and implementation problems: delaysin carrying out required tasks, environmental evaluations and assessments

that were not conducted in accordance with regulations, significant defects in

constructed buildings, a lack of sufficient performance data, and improper

accounting of program income.

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necessary materials. In addition, none of the $5 million appropriated for fiscal

year 2005 had been transferred to the Department of State’s Bureau of

Population, Refugees, and Migration to meet program needs, despite

notification to Congress that the funds would be made available. At that time,

the United Nations had estimated that 1 million people in Afghanistan were

living without shelter or basic necessities, and more than 3 million Afghanrefugees had fled to neighboring countries and would be forced to return to

Afghanistan. Eighty percent of those returning did not own land and would

require shelter and basic necessities.

As a result of our audit recommendations, USAID deobligated all

unexpended funds totaling $4,978,270 and reprogrammed the funds to an

Office of Foreign Disaster Assistance contract with CARE to provide shelter

to displaced Afghans. USAID also subobligated the remaining $4.5 million

into a participating agency program agreement with the Department of

State’s Bureau of Population, Refugees, and Migration. USAID and the

Department of State’s Bureau of Population, Refugees, and Migration then

developed a plan to use the $9.4 million for shelter related needs and other

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Through followup audits of USAID programs, OIG reviews the

effectiveness of actions taken in response to prior audit recommendations.

In our November 2003 review of work on the Kabul—Kandahar Highway in

Afghanistan, OlG found that the contractor lacked an updated

implementation plan, as required by the contract, to facilitate the

completion of activities on time and within budget. At the time of thesecond review in March 2004, the implementation plan was in place, and

construction activities appeared to be on track to meet established

deadlines.

Overall, OIG’s work has resulted in improvements in USAID

operations and in program implementation. The Agency has strengthenedcontractor oversight and ensured completion of monitoring plans,

performance plans, and performance reports. OIG has identified defective

work, and USAID has taken corrective action in such areas as highway

completion and building construction. Moreover, we have recommended

that certain funds be put to better use so that taxpayer money is well spent

and the programs work toward intended goals.

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programs intended to expand the country’s capacity to deliver services.

Two of these audits involve infrastructure projects, such as improving

transportation and energy distribution. In total, OIG plans to conduct eight

audits in Afghanistan this year.

Our investigative efforts complement our audit work. We generally

see allegations of false claims or statements by individuals attempting to

defraud the U.S. Government, although we occasionally receive allegationsof individuals involved with bribery, gratuities, or kickback schemes, as well

as conspiracy. To prevent fraud, we routinely provide training sessions in

fraud awareness for USAID staff and the staffs of implementing partners so

that they can recognize suspicious activity and report it to our office.

Thus far, we have initiated 26 investigations in Afghanistan. Our

work has resulted in eight indictments, seven arrests, three convictions, five

administrative actions, and recoveries or savings totaling close to

$20 million. OIG has six ongoing investigations.

In an investigation involving the United Nations Development

Program (UNDP), an international organization that administers

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UNDP had transferred funds to and from a USAID project systematically

without USAID’s knowledge or consent. When asked to explain the

transfers, the organization refused to justify the use of the majority of these

funds. The investigation further cited poor design and poor performance on

construction projects, failure to provide cost justifications, and false

reporting on projects. Following the investigation, USAID issued bills of

collection to the organization totaling nearly $7.5 million and initiatedsystemic changes to increase program oversight. The agreement between

USAID and the organization has ended. The Department of Justice

declined to prosecute because of immunity issues.

Another OlG investigation led to $11.2 million in savings for USAID.

The investigation was initiated in response to allegations that a grantee, in

order to win an award, made misrepresentations in its proposal pertaining to

the status of an agreement with a subgrantee. The investigation verified that

the representations were false, but because there was insufficient evidence

to prove intent, we could not secure prosecution. USAID, however,

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In Iraq, OIG oversight began almost immediately after the war began,

and we issued our first report in April 2003. We initially conducted our work

through temporary duty assignments until a permanent Baghdad office

(consisting of seven auditors and two investigators) was established in

2004.

Our workload in Iraq has been substantial: 45 performance audits

conducted, 123 financial audits issued, and 55 investigations initiated. As a

result, we made 110 recommendations, saw $25 million in questioned

costs sustained, and saved or recovered almost $6 million. OIG

employees in Iraq also provide frequent briefings on fraud awareness—30

since 2003.

Of the 110 recommendations that have resulted from performance

audits in Iraq, all but 7 have been implemented thus far, and 25 of the 110

(23 percent) were closed by the time the audit reports were issued. Thoseremaining deal primarily with data quality issues, and USAID has agreed

with and is addressing them. None of the open recommendations are more

than a year old.

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Because of OIG’s early involvement in reviewing the contracts and

providing feedback to management, we identified opportunities for USAID

to improve its award process for existing and future Iraq contracts. Some

changes that USAID has made are the following:

• Documenting presolicitation meetings.

• Developing guidance for determining whether requests for

proposals should specify that the firm has received a security

clearance.

• Standardizing the treatment of security costs in bidders’ cost

proposals overall, especially for contracts in Iraq.

As with our audits in Afghanistan, we have seen many instances in

USAID programs in Iraq in which problems with contract oversight and

activities management led to difficulties with implementation.

Primarily because of the dangerous environment, USAID was unable

to provide adequate oversight of the Community Stabilization Program.

This program was being implemented in major Iraqi cities by a U.S.

nonprofit organization under a $544 million cooperative agreement. In our

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insurgency by reducing the incentives for participating in it—because of the

unreliability of reported data concerning the generation of jobs, a key

indicator. Further, the audit found evidence of potential fraud that had not

been reported to DIG in a timely manner.

DIG recommended the suspension of program activities suspected of

fraud in a specific region of Baghdad. We also recommended that USAID

redirect $8.5 million to other programs, review program activities in other

regions of Iraq for similar evidence of fraud, establish procedures for the

prompt reporting of fraud, and improve the quality of data required for

oversight of this high-profile counterinsurgency program. Investigations of

fraud in the Community Stabilization Program are ongoing.

Another example of oversight problems comes from a 2005 audit of

activities in Iraq’s electrical power sector. The audit found that more than

30 percent of the projects underway had not achieved their goals.

Moreover, a strategic plan had not been developed, and concerns were

raised about the sustainability of the projects because of improper

operations or maintenance practices within the Ministry of Electricity. As a

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infrastructure rebuilt and refurbished by the U.S. Government. QIG plans

to conduct a new performance audit of the power sector later this fiscal

year.

A 2006 audit that we conducted in Iraq involved the implementation of

basic education programs. This audit found that fewer than half of the

program’s goals were being met and that the mission lacked a plan to

ensure that necessary computer equipment would be in place to operate an

information system meant to assist in managing education programs. QIG

recommended that USAID either ensure that appropriate computer

equipment would be obtained to operate the information system or

discontinue funding the program. The mission agreed with the

recommendation and initiated action prior to the audit report’s issuance to

put the computer equipment in place. OIG conducted a followup audit in

2007 and found that our recommendation had not been completely carried

out; specifically, the required equipment had not yet been installed because

servers were still in the customs clearance process. OIG recommendedthat the mission take action to install the servers and make the information

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Three involve capacity building and, of these, one centers on

improvements in the electricity sector.

We have nine investigations ongoing in Iraq. In another investigation,

an American employee and a foreign national employee of a USAID

contractor working in Iraq accepted kickbacks to direct the award of acontract. The two individuals were terminated from employment, and the

investigation uncovered approximately $4 million in overcharges to USAID

for project commodities. The case has been accepted for civil prosecution.

Oversight of Security Contractors

The U.S. Government, including USAID, relies on private security

contractors, known as PSCs, for a wide variety of security services,

including the protection of individuals, nonmilitary transport convoys, and

buildings and housing areas. By providing needed security for

reconstruction and stabilization activities in Iraq and Afghanistan, PSCs

contribute an essential service and are viewed as vital to U.S. efforts in

those countries. Nevertheless, the use of armed contractors to perform

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security firm and four subcontractors have been charged with conspiracy,

major fraud, and wire fraud. The indictment alleges that the subcontractors

defrauded the United States by obtaining reimbursement for inflatedexpenses purportedly incurred for rental vehicles, fuel, and securitypersonnel. USAID has suspended the security firm and its principals. Theinvestigation remains ongoing.

In addition to the investigative work involving PSCs, we are

conducting an audit in Iraq to determine whether USAID has managed its

contracts and grant agreements to ensure that adequate oversight has

been exercised over the PSCs employed by contractors and grantees. We

expect to issue the findings from that audit within the next several months.

In a January 2005 audit of a contract with one vendor of security

services, QIG found problems with USAID’s contracting process: The

Agency had not adequately documented the use of less than full and open

competition or explained its contractor choice, and it had obtained theservices using a letter of credit that did not meet Federal Acquisition

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documentation to support the $1.9 million cost of the vehicles. OIG madeseveral recOmmendations to improve contracting procedures, along with a

recommendation that USAID determine whether funds-control violations

had actually occurred. As a result, USAID reeducated its contracting

officers on numerous acquisition regulations and determined that the

suspected violations had not occurred.

Moving Forward in Afghanistan and Iraq

As the U.S. Government moves forward with development efforts in

Afghanistan and Iraq, we can point to two steps that will help USAID

strengthen accountability of development programs: (1) examining internal

USAID procedures to provide better contract oversight and project

management, in light of security concerns, and (2) hiring additional contract

specialists and ensuring that contracting officers’ technical representatives,

or COTRs, are trained and appropriately held accountable. USAID has

begun to make improvements in both areas.

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working conditions, such as the following:

• Hiring additional local staff, who can operate more easily in Iraq

and Afghanistan than U.S. employees;

• Coordinating with the military, in some cases, when military

personnel may be able to provide assistance in areas of poor

security; and

• Employing virtual techniques, such as periodic digital

photography, more widely to document progress in

infrastructure reconstruction.

Despite these positive steps, DIG is concerned that USAID does not

have a sufficient number of well-trained technical representatives to handle

the large numbers of contracts issued by the Agency.

We recommended in a September 2003 audit that USAID place

greater emphasis on training contracting officers’ technical representatives

(formerly referred to by USAID as cognizant technical officers) and hold

them responsible for conducting these duties through proper designation

and evaluation procedures. We conducted a followup audit in 2008 and

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The Administrator recognized our concerns, and the Agency directed

employees to follow proper procedures and provide the necessary

documentation. Also, the Agency is now providing additional training toCOTRs.

Conclusion

The security situation in both Afghanistan and Iraq will continue to

affect virtually every aspect of USAID’s development efforts. We

understand that the risks constrain USAID’s ability to manage its

assistance activities. However, we also recognize the importance ofcarrying out U.S. assistance accountably. In addition to coping with the

security problems, USAID must have a substantial and well-trained corps ofcontract and activities managers to adequately oversee its development

programs. The Agency also must find ways in these difficult and

dangerous environments to improve the quality of its performance data.

With sound data, USAID can measure its efforts successfully and

demonstrate to the American people that tax dollars are being spent iseIy

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some of the challenges we have seen in implementing development

programs in Afghanistan and Iraq. We in OIG are committed to working

through the challenges, along with USAID, to provide effective oversight

and help improve development programs. We appreciate the involvementof the Committee on Wartime Contracting in Iraq and Afghanistan as it

works to further improve processes and ensure that funds for

reconstruction and development efforts in these countries are spent

appropriately. I would be happy to answer any questions the Committee

might have.

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