FOREIGN ASSISTANCE 

Implementing Disaster 

Recovery Assistance in 

Latin America 

Statement of Jess T. Ford, Director, 

International Affairs and Trade 

United States General Accounting Office 

GAO Testimony

Before the Subcommittee on Foreign Operations, Export 

Financing, and Related Programs, Committee on 

Appropriations, House of Representatives 

For Release on Delivery 

Expected at 10:00 a.m. 

Wednesday, 

March 21, 2001 

GAO-01-541T 
 

 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our work on the U.S. government’s disaster 

recovery and reconstruction program for hurricane-affected countries. In the fall of 

1998, Hurricanes Mitch and Georges struck Central America and the Caribbean. The 

storms left thousands dead and many more homeless; damages were estimated at more 

than $10 billion. The international donor community pledged $9 billion to assist in the 

recovery and reconstruction of Mitch-affected countries in Central America. In May 

1999, the Congress passed emergency supplemental legislation that, among other things, 

provided $621 million for a disaster recovery and reconstruction fund for the affected 

countries as well as reimbursement funds to U.S. agencies for costs incurred during the 

immediate relief phase.1 The U.S. Agency for International Development (USAID) and 

numerous other U.S. departments and agencies are using this funding to implement 

recovery and reconstruction activities. 

 

The emergency supplemental legislation required GAO to monitor the assistance 

provided. To date, we have focused most of our effort on determining what programs 

and projects are being funded by USAID and the other U.S. departments and agencies, 

the objectives and purposes of these activities, and how USAID is ensuring that the 

disaster recovery funds are spent for intended purposes. We also examined how USAID 

has coordinated with other international donors and the other U.S. agencies; what 

USAID has done, as directed by the legislation, to help the affected countries develop an 

institutional capability to resist corruption; and what USAID has done to mitigate the 

effects of future disasters. 

I should also note that the USAID Inspector General is conducting audits of USAID’s 

disaster recovery programs. We have coordinated closely with the Inspector General’s 

office, in particular, its Regional Inspector General’s Office in El Salvador. In general, 

the USAID Inspector General has focused its oversight efforts on the accounting and 

financial records, while we have emphasized whether the disaster recovery assistance 

funds are achieving their intended purposes. 

My statement today will cover three main points related to these issues: 

• progress to date as a result of the disaster recovery program, 

• oversight measures put in place to ensure that funds are spent for their intended 

purposes, and 

• our observations on some of the challenges faced by USAID in implementing largescale disaster recovery and reconstruction assistance programs such as this. 

To address these matters, we have made more than 20 field trips to some of the most 

remote parts of the affected countries but focused on the two receiving the most 

assistance—Honduras ($293.1 million) and Nicaragua ($94.1 million). On our trips, we 

 

1

 Public Law 106-31, May 21, 1999. 
2

met and talked with many of the people most affected by the hurricane and monitored 

the progress of numerous USAID projects. We plan to issue a final report to the 

Congress in July 2002 after USAID has expended all or most of its disaster recovery and 

reconstruction funds. 

SUMMARY

The disaster recovery assistance program has made progress. With some variance by 

country, USAID and the other U.S. departments and agencies are using the disaster 

recovery assistance to bring about economic recovery, improve public health and access 

to education, provide permanent housing for displaced families, and improve disaster 

mitigation and preparedness. To achieve these broad objectives, USAID is funding 

infrastructure construction and repair, technical assistance and training, loans for 

farmers and small businesses, and some commodities. Other U.S. departments and 

agencies are addressing these objectives through a variety of programs and activities. 

For example, the U.S. Geological Survey is providing assistance in mapping and 

hydrology and the U.S. Department of Agriculture is providing assistance in watershed 

management and food safety. 

After initial start-up problems, the U.S. disaster recovery and reconstruction program is 

proceeding, and most activities are scheduled for completion on or before December 31, 

2001, as USAID and congressional staff had informally agreed. In its most recent 

quarterly report for the period ending December 31, 2000, USAID reported that it and the 

other U.S. agencies had spent about $253 million, or 41 percent of the disaster recovery 

funding. (See figure 1.) 

Figure 1: USAID’s Expenditures for Three Largest Recipient Countries and Other 

Affected Countries 

 Source: USAID 

Source: USAID 

0 25 50 75 100 125 150 175 200 225 250 275 300

Millions of dollars

Other

Dominican

Republic

Nicaragua

Honduras

Expenditures as of 12/31/00 Funds remaining as of 12/31/00

Other includes Colombia, Costa

Rica, El Salvador, Guatemala, Haiti,

and regional programs

As of December 31, 2000, $253 million

(41 percent) of the recovery funds

had been expended.
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At the present time, it appears that USAID will complete most of its program by the end 

of the year with the likely exception of a municipal water and sanitation program in 

Honduras. This program started later than most of the rest in Honduras because (1) 

some of the initial designs were found to be flawed following a review by the U.S. Army 

Corps of Engineers and (2) numerous small projects were combined to attract U.S. 

companies. Some of these projects are considered critical components of larger ongoing 

or planned water and sanitation projects, and their delay would affect the outcome of the 

overall program. 

To help ensure that funds are spent for intended purposes, USAID has channeled much 

of the disaster recovery assistance funding through cooperating partners with proven 

track records, contracted with management and financial services firms to handle 

disbursements to vulnerable partners (including host governments), and hired 

contractors to monitor project quality. In addition, the USAID Inspector General is 

conducting concurrent and regular audits and provided fraud awareness training for 

cooperating partners. Although some activities have not gone as smoothly as planned, 

the missions have responded to concerns as they arose. For example, 

• While visiting northern Honduras in October 2000, we traveled on a road being 

repaired with USAID funds that had not been compacted properly and was extremely 

difficult to navigate. The U.S. engineer overseeing the road repairs took action to 

ensure its proper construction by our next trip in February 2001. Also, responding to 

concerns raised in an independent evaluation and by GAO and the USAID Inspector 

General, USAID suspended $500,000 in agricultural loans pending a firm commitment 

by the implementing organization to improve its management practices. In January 

2001, the Honduran Ministry of Finance signed a memorandum of understanding with 

the organization outlining these reforms and USAID expects to release the funds this 

month. 

• In Nicaragua, some organizations USAID used for infrastructure projects did not have 

the required technical expertise. For example, a private voluntary organization 

responsible for repairing certain dirt and gravel roads hired engineers, at USAID’s 

urging, after the USAID reconstruction coordinator, GAO staff, and others 

determined that some of the repairs were inadequate. We also observed that a 

rehabilitated health post and doctor’s residence had been vacant for several months. 

Following our visit, the Ministry of Health assigned a doctor and we found the clinic 

operating during a subsequent field trip. 

This brings me to the final topic I would like to discuss today—some observations about 

the challenges USAID faced as it planned and implemented this large-scale program. The 

bottom line is that USAID did not have the mechanisms to quickly design and implement 

a large-scale infrastructure program with relatively short-range deadlines. The disaster 

recovery and reconstruction projects we examined are neither short-term emergency 

relief nor long-term development assistance—more typical USAID programs. As a result, 

USAID staff faced numerous challenges in getting the program off the ground. For 

example, before Hurricane Mitch, the Honduras mission was managing an annual 

development program of about $23 million. In addition to managing the immediate relief 
4

effort and implementing an initial reconstruction program with reprogrammed funds, the 

mission found itself with the task of planning and implementing a program more than ten 

times its previous year’s program. Inadequate levels of staff and contractor support, 

efforts to help ensure that financial controls and oversight measures were in place, the 

involvement of numerous other U.S. government agencies, and attempts to ensure 

competition among contractors and grantees affected the pace of implementation. 

These factors should be considered in future disaster recovery and reconstruction 

efforts. However, USAID has initiated an agency-wide review of its disaster recovery 

efforts with emphasis on improving its planning for and delivery of disaster recovery 

assistance. Therefore, we are not making any recommendations at this time. 

BACKGROUND

In late October and early November 1998, Hurricane Mitch struck Central America, 

dumping more than six feet of rain in less than a week, mostly over Honduras. The 

heavy rainfall produced flooding and landslides that killed thousands of people; left tens 

of thousands homeless; and devastated infrastructure, agriculture, and local economies. 

In addition, in September 1998, Hurricane Georges hit several eastern Caribbean islands 

and the island of Hispaniola, which comprises the Dominican Republic and Haiti. 

Hurricane Georges also caused the deaths of hundreds of people and severely damaged 

infrastructure, crops, and businesses. 

U.S. relief efforts began immediately; the Congress and the administration recognized the 

need for longer-term assistance for recovery and reconstruction. In March 1999, 

President Clinton visited Central America and promised to help these countries rebuild 

their economies and social sectors. At the same time, USAID began developing a 

recovery plan for each hurricane-affected country, which outlined USAID’s funding 

estimates and proposed programs. In May 1999, the Congress passed and the President 

signed an emergency supplemental appropriation that provided, among other things, 

$621 million for the countries affected by Hurricanes Mitch and Georges. Prior to 

obligating the funds, USAID was required to provide formal notifications to the 

Congress. USAID began submitting its notifications in late May, and most funds were 

available in July 1999. 

USAID is the primary agency responsible for carrying out the U.S. disaster recovery 

program. Of the $621 million authorized, USAID is directly responsible for about 

$587 million, including about $62 million in agreements with other U.S. departments and 

agencies, such as the U.S. Department of Agriculture and U.S. Geological Survey. The 

remaining $34 million represents direct transfers from USAID to other U.S. agencies, 

such as the Departments of Housing and Urban Development and State. Honduras, 

which received the brunt of Hurricane Mitch, was allocated $293.1 million and Nicaragua 

was allocated $94.1 million. 

USAID’s overall objectives are to help bring about economic recovery, restore and 

improve basic services, and mitigate the effects of future natural disasters. Each 
5

country’s program varies based on country conditions and the USAID mission’s 

approach. However, the funds are generally allocated for 

• repairing or rebuilding (1) the infrastructure needed for reactivating economies (for 

example, roads and bridges), (2) public health infrastructure (for example, potable 

water systems, sewage and drainage systems, and health clinics), (3) housing, and (4) 

schools; 

• providing loans, credits, and technical assistance for small and medium-sized farms 

and businesses; 

• strengthening civil defense and early warning/prevention efforts; 

• assisting disaster mitigation efforts such as watershed management; and 

• strengthening accountability. 

DISASTER RECOVERY PROGRAM 

ADDRESSES INTENDED PURPOSES

USAID experienced considerable challenges in initiating this large-scale disaster 

recovery program—I will discuss these in more detail in a later section of my testimony. 

USAID essentially had to reconcile the competing interests of quick implementation with 

ensuring that appropriate oversight and financial controls were in place and 

procurement actions were open and transparent. 

Despite these initial concerns, USAID and other U.S. departments and agencies are 

implementing programs and serving the intended beneficiaries, as we have observed 

from our numerous visits to the field. We have seen signs of progress in all sectors, 

including repairs and construction of roads and bridges, water and sewer systems, 

housing, schools, and health clinics; loans for farms and businesses; and technical 

assistance, training, and equipment for agricultural and disaster mitigation programs. 

For example, in Honduras, as of the end of February 2001, 625 kilometers (390 miles) of 

roads and 1,231 linear feet of bridges had been rehabilitated. Also in Honduras, USAID 

reports that its cooperating partners completed 2,072 new homes for hurricane victims 

and another 2,825 homes are under construction. The USAID mission in Nicaragua 

reported that, as of the end of 2000, more than 26,000 Nicaraguans participated in cash 

and food-for-work programs to repair about 340 kilometers (210 miles) of roads and 

improve another 839 kilometers (520 miles). USAID’s cooperating partners in Nicaragua 

also built or repaired about 1,034 wells and 3,800 latrines. 

Now I would like to discuss some examples of progress being made in Honduras and 

Nicaragua. 
6

Honduras

In Honduras, USAID had spent about $92 million or 31 percent of its allocated amount as 

of December 31, 2000. We have made seven trips to Honduras and noted the following 

examples of progress based on our field work: 

• USAID financed the repair of 625 kilometers (390 miles) of secondary roads and 

1,231 meters of bridges as of February 28, 2001. USAID is also financing 

15 kilometers (9 miles) of cobblestone roads. We have traveled a good portion of 

these roads both before and after the repairs and observed the improvements. 

USAID plans to repair 1,250 kilometers (775 miles) of roads and 5,220 meters of 

bridges. The total bridge repair program consists of 106 bridges and 145 low-level 

crossings. USAID had originally targeted 2,000 kilometers of road repairs but revised 

it due to higher than estimated unit costs and the increase in bridge work, which was 

increased from 2,000 meters. When completed, this program is expected to connect 

two million people in 375 communities in six departments with secondary cities and 

commercial centers. (See figure 2.) 

Figure 2: Cobblestone Road Project in Pespire, Honduras 

Source: GAO 

• USAID’s municipal water and sanitation program managed by the Honduran Social 

Investment Fund is behind schedule but some progress is evident. As of December 

31, 2000, 36 of 80 planned projects were underway, and a total of $41 million in host 

country contracts had been signed, representing 53 percent of the planned program. 

We recently observed projects where water tanks and connections are being built and 

sewage lines and treatment lagoons are being constructed. In addition, USAID, 

through the Honduran national water authority, reconstructed 587 rural water 

systems (of 1,469 targeted) and 9,241 latrines (20,000 are planned). We observed 

several of the rural water supply systems being repaired and talked with beneficiaries 

about their plans for operations and maintenance. (See figure 3.) 
7

Figure 3: Water and Sanitation Projects Near Choluteca, Honduras 

Source: GAO 

• As of March 15, 2001, according to mission estimates, USAID’s cooperating partners 

completed 2,072 houses, and another 2,825 were under construction. USAID had 

originally planned to complete about 5,000 houses, but now estimates that it may 

complete 5,100 or more. Most temporary shelters have been dismantled as families 

have moved into permanent housing. (See figure 4.) We observed many of these 

houses in different areas of the country and talked with the residents of completed 

units. In many cases, the houses are better than the ones they lost to the hurricane. 

Figure 4: Temporary Shelters in El Progresso Compared to Housing Completed With 

Disaster Recovery Funds in El Pataste, Honduras 

Source: GAO 
8

• As of December 31, 2000, USAID had financed more than $5 million in 781 

agricultural loans for small and medium-sized farms, and its microenterprise program 

issued 57,637 loans. We met with some of the beneficiaries—from a shrimp farmer in 

Choluteca to micro-entrepreneurs selling juice and snacks in northern Honduras—to 

discuss the impact of the hurricane on their livelihood, how the USAID-financed 

loans have helped them, and how they plan to repay the loans. The recipients seem 

to understand the payment terms, and many with whom we spoke hope to borrow 

more as they expand their businesses. 

• The U.S. Geological Survey has installed gauges at key points in rivers to collect and 

record information on water depths over time. (See figure 5.) This information is 

linked by satellite to the Internet and has already come into use—the mayor of 

Choluteca used it to evacuate parts of the city during heavy rains in 1999. 

Figure 5: River Gauge Near Choluteca, Honduras 

 

Source: GAO 

• We observed additional ongoing and completed projects, including agricultural 

technical assistance programs, assistance for milk collection centers, construction of 

primary school classrooms (see figure 6) and vocational centers, distance learning 

pilots for junior-high school students, and community disaster preparedness 

programs. 
9

Figure 6: School Under Repair Near La Ceiba, Honduras 

 

Source: GAO 

Nicaragua

We have made seven trips to Nicaragua, where the program has less emphasis on heavy 

infrastructure than in Honduras but similarly targets the economic and social needs of 

hurricane-affected populations, mostly in the northern part of the country. As of 

December 31, 2000, USAID had spent almost $51 million in Nicaragua—54 percent its 

planned amount. We noted the following examples of progress based on our fieldwork: 

• USAID, through its cooperating partners, plans to rehabilitate or improve 

1,375 kilometers (850 miles) of farm-to-market roads using local labor through cashfor-work and food-for-work programs. As of December 31, 2000, 340 kilometers 

(210 miles) were rehabilitated and another 839 kilometers (520 miles) had been 

improved. USAID estimates that 31,000 families in 700 communities have benefited 

from the increased access to markets. As in Honduras, we traveled extensively over 

many of these roads and observed the improvements made. More than 26,000 

Nicaraguans have participated in the cash and food-for-work programs. These 

programs primarily rehabilitate roads but also build or repair retaining walls, dikes, 

culverts, and irrigation diversion dams. (See figure 7.) Although some of these road 

activities encountered problems in the beginning, as I will discuss in the next section, 

these programs are making progress, and the quality of repairs has improved. 
10

Figure 7: Construction of Retaining Walls and Culverts Near Jinotega, Nicaragua 

Source: GAO 

• In the public health sector, USAID plans to build or repair 2,550 water wells, 5,640 

latrines, 28 health centers, and 32 rural health posts as well as provide job training 

and health education to families in remote areas affected by Hurricane Mitch. As of 

December 31, 2000, USAID, through its partners, had built or repaired 1,034 wells and 

3,800 latrines. USAID-funded drilling rigs had also drilled 87 deep wells. USAID 

expects to exceed its original target of 160 drilled wells by as many as 100. Also, 

three health centers were nearly complete and land for three more has been secured, 

seven rural health posts had been built, and the Matagalpa hospital was rehabilitated. 

We observed numerous repaired wells, latrines, and health centers and posts. (See 

figure 8.) 

Figure 8: Well Sites in Rural Nicaragua 

Source: GAO 
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• USAID is also providing agricultural assistance. For example, two private voluntary 

organizations sponsored programs that provided 590 rural residents, mostly women, 

with farm animals and training. Another organization is helping to improve crop 

production by providing assistance in using organic fertilizers and pesticides, thereby 

reducing the inputs needed to produce a crop. 

• We also observed many USAID efforts to repair and equip primary school classrooms 

and to improve disaster mitigation, such as stabilizing stream channels and 

formulating community disaster preparedness plans. 

USAID Encounters Problems With Some Projects

In this large and complex program, with its heavy emphasis on infrastructure repair, not 

all activities have gone as smoothly as planned. For example, 

• In Honduras, the municipal water and sanitation program managed by the Social 

Investment Fund and implemented by U.S. contractors is behind schedule. The 

program did not get started until July 2000 because (1) some of the designs submitted 

by the municipalities had to be revised after the U.S. Army Corps of Engineers 

reviewed them and (2) USAID decided to combine numerous small projects into 

packages large enough to attract U.S. companies. Although some of these projects 

are considered “stand-alone” and not essential components of other projects, some 

are critical components of larger projects. If the projects that are considered critical 

to other components are delayed, this will have significant impacts on the program 

and could result in wasted efforts. For example, we observed the construction of 

treatment lagoons in Choluteca that can only be used after a pumping station is 

constructed. (See figure 9.) 

Figure 9: Construction of Sewage Treatment Lagoons Near Choluteca, Honduras 

Source: GAO 

• Also in Honduras, some concerns remain about an ambitious resettlement project 

near Choluteca—Limon de la Cerca—a housing subdivision designed for 2,300 lots. 
12

Twelve nongovernmental organizations representing a variety of international 

donors built 1,126 houses for families who lost their homes in Mitch floods. USAID 

funded a temporary health clinic and a vocational training center. USAID is also 

funding a potable water and sewer system for the planned community; the residents 

have a temporary water supply and latrines in the meantime. However, because such 

services are not complete or are inadequate to support the community, many houses 

remain unoccupied and some families have moved elsewhere. Crime is increasing 

and some residents are stealing materials from unoccupied houses. According to 

USAID officials, these problems stem partly from the rush of donors to finish houses 

and the fact that community leadership has been divided among the different areas 

developed by nongovernmental organizations, with the unintended result of setting 

up separate communities. (See figure 10.) USAID is optimistic that the community 

will become more viable as more families move in following completion of the water 

system and the rest of the houses. However, USAID officials also noted that 

experienced developers are needed for these large sites to help ensure that attention 

is paid to overall infrastructure and services. 

Figure 10: Houses in Limon de la Cerca, Honduras 

Source: GAO 

• In Nicaragua, USAID hired a U.S. firm to oversee 23 municipal infrastructure projects 

totaling $3.6 million that were to be implemented by the government’s Emergency 

Social Investment Fund. However, only 3 projects have been completed, and USAID 

has cancelled 12 of the remaining projects due to design problems and the need to 

finish the program by December 2001. USAID will reprogram the funds, totaling 

about $1.5 million, for other projects. In one of the initial projects—a road paving 

activity in Tipitapa—the local contractor notified USAID that the road design had 

been changed to extend the paving to more sections of the city, resulting in a thinner 

layer of asphalt than called for by the project’s specifications. USAID immediately 

suspended the contract. The project was subsequently redesigned using different 
13

paving materials and USAID is monitoring it to ensure that the project will be 

completed according to the new specifications. 

OVERSIGHT IDENTIFIES PROBLEMS AND USAID RESPONDS

Since the disaster recovery assistance program began, USAID has undertaken a number 

of measures to guard against potential misuse of assistance and address problems as 

projects are underway. In addition, oversight and monitoring of the assistance by us and 

the USAID Inspector General has resulted in instances of problems being identified and 

addressed by USAID. 

USAID Establishes Additional Oversight Measures

Due to widespread concerns that such a large program with a 30-month timeframe could 

be susceptible to misuse or corruption, USAID missions were cautious at the outset of 

the program. In addition to its regular program and financial controls, USAID took some 

extra oversight measures. 

• In Honduras, the major infrastructure construction programs—totaling about 

$135 million—are implemented primarily by the Honduran Social Investment Fund, a 

government agency established to ease the impact of structural adjustment policies 

through employment generation and social programs. To protect the U.S. investment 

from potential misuse, the mission established within the Fund a separate oversight 

unit for a $50 million road and bridge program in Honduras. The unit is headed by a 

U.S. project manager with a U.S. engineer and local support staff. For both the road 

and water and sanitation programs, the mission contracted with financial services 

firms to handle disbursements to the Fund following approvals by USAID and the 

oversight unit. USAID also relies on the U.S. Army Corps of Engineers to provide 

technical oversight of the water and sanitation program. For the school program in 

Honduras, USAID only reimburses the Fund after units are completed and have been 

inspected by USAID and its oversight contractors. Finally, in many instances the 

mission hired U.S. management services firms and private voluntary organizations to 

oversee other activities implemented by local entities. 

• USAID’s program in Nicaragua is mostly implemented by U.S. and international 

voluntary organizations that have a proven track record with the mission and local 

implementing organizations and whose ongoing programs could be amended. For its 

only program with the Nicaraguan government—a $3.6 million municipal 

infrastructure program implemented by the Emergency Social Investment Fund—

USAID hired a U.S. management services firm to provide oversight and technical 

assistance. USAID also relied on the U.S. Army Corps of Engineers to review 

municipal infrastructure designs and make recommendations accordingly. 

• In all its missions, USAID hired additional personal services contractors to oversee 

the programs and serve as technical officers. In Nicaragua, USAID hired a 

reconstruction coordinator; in Honduras, the program office and technical officers 

throughout the mission share responsibility for oversight. 
14

Further oversight was provided by USAID’s Office of the Inspector General, which was 

allocated an additional $1.5 million to provide audit coverage of the disaster recovery 

program. Accordingly, the Regional Inspector General’s Office in El Salvador has 

contracted with the Defense Contract Audit Agency and local affiliates of international 

accounting firms to conduct concurrent audits of vulnerable programs and regular audits 

of many other programs. Also, the USAID missions are requiring some funding 

recipients to contract for their own audits. 

USAID Response to Project Concerns

Through the increased oversight of this program several concerns were identified as 

project implementation was under way. In many cases, USAID took action as problems 

arose, whether they were identified by USAID’s own staff and contractors or Inspector 

General or GAO audits. I will discuss some of these issues for the two countries we are 

focused on—Honduras and Nicaragua. 

Honduras

• During a trip to northern Honduras in October 2000, we traveled a road that had been 

repaired with USAID funds that had been poorly compacted. Recent rains had turned 

the road to mud and it was nearly impossible to navigate. This road is an important 

access route for transporting African palm oil to the coast for export and for local 

commerce. The U.S. engineer responsible for technical oversight agreed with our 

concerns and took prompt action to ensure the road was repaired properly. On a 

subsequent visit, we noted that the road was in excellent condition. 

• Our visits to El Pataste in northern Honduras in July 2000 contributed to increased 

pressure by the USAID mission that partners specify how water, sanitation, roads, 

schools, and other key community services will be provided for housing projects. 

During this visit, we observed a housing project with well-constructed houses but no 

firm plans for potable water, despite a contractual obligation to ensure that key 

services are incorporated into housing communities. USAID eventually was 

successful in having the implementing organization negotiate a solution for the 

provision of potable water. USAID also developed a matrix for each housing project 

that specifies how water and other infrastructure are to be provided as well as proof 

that an environmental assessment had been completed, an additional USIAD 

requirement. 

• USAID provided $2.5 million to an agricultural lending cooperative for loans for small 

and medium-size farms despite a record of concerns about its management problems 

and financial viability. According to USAID, this organization was the only one 

available providing access to credit for these smaller producers. USAID hired a 

management services firm to handle loan disbursements and provide technical 

assistance for implementing management reforms, but the problems persisted. Based 

partly on GAO’s scrutiny, USAID pressured the organization’s Board of Directors to 

accept major restructuring of its organizational, management, and financial structure. 
15

In January 2001, the Honduran Minister of Finance signed a memorandum of 

understanding with the lending organization outlining these changes and the likely 

consequences if the reforms are not made. USAID had suspended the remaining 

$500,000 of the $2.5 million loan fund pending the signing of the memorandum; these 

funds will be released this month. 

• A USAID Inspector General’s audit of questionable loans and GAO’s questions forced 

increased accountability over a supplemental loan fund (about $1.5 million) 

implemented by a local organization for micro-entrepreneurs affected by Hurricane 

Mitch. In addition, some loans that did not meet the criteria for the supplemental 

loan fund were removed and placed in a separate fund. 

Nicaragua

• A GAO team visited numerous sites where an international private voluntary 

organization was implementing cash-for-work rural road rehabilitation projects. We 

pointed out several deficiencies in the quality of the work, including (1) roads not 

properly crowned to prevent standing water, (2) ditches not adequately dug to 

facilitate drainage of water, and (3) roadbed materials not suitable for withstanding 

traffic and weather. Based on our comments, as well as input from the U.S. Army 

Corps of Engineers and others, the private voluntary organization hired engineers to 

oversee road activities. We observed a noticeable improvement in this organization’s 

road projects on subsequent visits. (See figure 11.) 

Figure 11: Rural Road Near Jinotega, Nicaragua 

Source: GAO 

• In October 2000, GAO visited a rural health post where a private voluntary 

organization constructed a residence for medical personnel and rehabilitated a clinic. 

USAID and project staff were told that the work had been completed, the Ministry of 

Health had assigned medical personnel, and the post was in operation. However, 

when we arrived the facility was vacant and evidently had been so for months. We 

questioned whether USAID should be involved in such a project, given the Ministry’s 
16

lack of support. In January 2001, we returned to the clinic unannounced and found 

that a doctor was present and living at the residence and the clinic was operating. He 

had been assigned following our earlier visit. (See figure 12.) 

Figure 12: Rural Health Facility Near Matagalpa, Nicaragua 

Source: GAO 

OTHER ISSUES

As I noted earlier in my statement, we also examined USAID’s efforts to coordinate with 

other donors and U.S. agencies, help the affected countries’ audit authorities, and 

mitigate for future disasters. Overall, USAID has done an adequate job of coordinating 

its assistance to minimize any duplication or overlap with other donors and U.S. 

agencies, but it has made limited progress in strengthening audit authorities or in 

mitigating against future disasters due, in large part, to a number of variables outside 

USAID’s control. 

USAID has coordinated with other bilateral and multilateral donors through formal 

consultative group meetings and informal contacts among mission staff and other 

donors. In contrast to many other donors, USAID is concentrating its activities in rural 

areas and smaller cities making it unlikely USAID will duplicate other donor efforts. 

Also, 13 other U.S. departments and agencies are implementing about $96 million2

 in 

disaster recovery activities. After some initial delays, USAID worked with these agencies 

to help plan their efforts. We found no evidence that USAID activities duplicated those 

of other international donors or the other U.S. departments and agencies. 

USAID is attempting to strengthen the capacity of host governments to resist corruption, 

but cannot point to much progress. For example, 

 

2

This amount does not include funds transferred by USAID through Participating Agency Service 

Agreements, which are included in USAID’s overall totals. 
17

• USAID provided $1.5 million to the Controller General’s Office in Honduras to 

continue an effort initiated before Hurricane Mitch to strengthen its capacity to audit 

USAID activities. 

• In contrast, a USAID program with the Controller General’s Office in Nicaragua 

(funded with regular funds) will not be extended because the Nicaraguan government 

created a panel of five appointees to oversee the Controller General, thereby diluting 

the office’s independence. Similarly, according to USAID, it terminated its program 

with the Dominican Republic’s Controller General because the Controller is not 

independent of executive branch interference. 

• USAID also plans to contribute $3 million and $1 million for Honduras and Nicaragua, 

respectively, to the Inter-American Development Bank to institute donor assistance 

oversight units. However, these units have not been implemented due to 

disagreements over proposal terms. 

USAID and the other U.S. government agencies are helping the hurricane-affected 

countries mitigate the effect of future natural disasters. Some of these activities support 

equipment and training for central civil defense institutions and community disaster 

preparedness programs. Other activities are aimed at improving watershed and 

agricultural management practices and encouraging families to relocate to less 

vulnerable areas. U.S. disaster mitigation efforts are constrained by the lack of suitable 

land for housing and infrastructure, decades of deforestation and other inappropriate 

environmental practices, and the lack of host government resources to sustain mitigation 

efforts. 

OBSERVATIONS ON DISASTER RECOVERY EFFORTS

As I noted earlier, USAID faced—and continues to face—many challenges in 

implementing a large-scale recovery program, within a 30-month period, that is neither 

immediate relief nor long-term development. USAID essentially had to balance the 

competing demands for quick disbursement versus the need to build in extra 

accountability measures and the desire, in some cases, to attract U.S. business 

participation. In addition, the missions were essentially dealing with three disaster 

programs almost simultaneously—providing immediate emergency relief, implementing 

the initial recovery phase funded through reprogrammed and other USAID emergency 

funds, and planning and designing the large-scale supplemental disaster recovery 

assistance. These factors contributed to start-up time and should be considered when 

planning and implementing future disaster recovery and reconstruction programs. 

The bottom line is that USAID did not have the mechanisms to quickly design and 

implement a large-scale infrastructure program with relatively short-range deadlines. 

For example, 

• The disaster recovery program includes sectors in which the USAID missions in 

Honduras and Nicaragua had little or no expertise, such as construction, 
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infrastructure repair, watershed management, and disaster mitigation efforts. The 

USAID missions obtained this expertise through contractors and other U.S. agencies. 

• In fiscal year 1998, the Honduras and Nicaragua missions were managing annual 

programs of about $23 million and $30 million, respectively. The Honduras mission, 

in particular, had been considerably reduced in size and it took many months—in a 

few cases more than a year—to fill the positions needed to oversee the disaster 

recovery program. In particular, the Honduras mission did not have a permanent 

contract officer—it had been sharing one with the Nicaragua mission—until October 

1999, 1 year after Hurricane Mitch. Other missions also shared contract officers. In 

some cases, the reconstruction program included sectors in which the missions were 

not active. For example, the Honduras mission had essentially phased out its 

agricultural program before Hurricane Mitch. USAID direct-hires in general, and 

contract officers in particular, have declined in recent years and were not readily 

available to manage large-scale emergency programs. This problem was 

compounded by some USAID direct hire rotations during the summer of 1999 

following passage of the disaster recovery funding. Although USAID’s headquarters 

office attempted to ease the burden by providing temporary staff in the hurricaneaffected countries, the missions lacked needed continuity. 

• Acquiring personal services and institutional contractors with the requisite language 

and technical skills often took 6 months to a year. The time involved included 

gaining the respective embassy’s approval, advertising the positions, and obtaining 

security clearances for new contractors. 

• Although USAID missions had the authority to waive full and open competition for 

awarding contracts and grants, it was used sparingly. Using sole source awards 

would have speeded up the award process, but it likely would have precluded U.S. 

firms from being awarded contracts. The Honduran mission, for example, redesigned 

much of its municipal water and sanitation program to allow U.S. firms to compete, 

resulting in a later start date. The mission used the waiver authority to bypass 

advertising normally required in the Commerce Business Daily, which saved 60 days 

in awarding several contracts. 

• The accountability measures discussed above also had to be established prior to 

program implementation. For example, for its host country contracting programs, 

the USAID mission in Honduras had to advertise for and select the U.S. engineering 

and project management staff that oversaw the technical aspects and the third-party 

accounting firm that handled disbursements. 

• Thirteen additional U.S. departments and agencies received disaster recovery funds, 

and eight of these were linked with USAID’s program. Many of these agencies had 

little or no prior experience in working overseas. At the outset, USAID staff spent 

considerable time incorporating these agencies into USAID’s development approach. 

In addition, the agencies’ administrative requirements, such as office space, 

residences, vehicles, equipment, and supplies had to be coordinated with the 

respective U.S. embassy’s overall administrative services account. Officials from the 
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other U.S. agencies expressed concerns about the time it took to incorporate a 

relevant program into USAID’s framework and the administrative constraints of 

operating in an overseas environment. Nevertheless, USAID officials generally 

agreed that many agencies added value to the program once the initial start-up 

problems were resolved. In particular, USAID officials most often cited the four 

agencies with scientific, technical, and engineering expertise not available at 

USAID—the U.S. Geological Survey, the U.S. Army Corps of Engineers, the U.S. 

Department of Agriculture, and the National Oceanic and Atmospheric 

Administration. 

USAID officials in the overseas missions and in USAID’s Washington, D.C., headquarters 

generally agreed with our overall observations. They emphasized that the lead role 

which USAID was expected to perform in planning and implementing the disaster 

recovery program was a significant challenge. 

According to these USAID officials, USAID's Latin America and the Caribbean Bureau 

produced a "lessons learned" analysis several months after the disaster recovery 

program's start-up. It looked at the principal steps in the disaster recovery program 

process and offered observations on systemic and procedural changes needed for a 

similar response in the future. This has led to an ongoing, USAID-wide review of its 

experiences with international emergencies. A series of recommendations is under 

consideration, including options for funding, staff mobilization, contracting and the use 

of special authorities, and relationships with other U.S. government agencies and the 

private sector. 

Therefore, we are not making any recommendations at this time. We will continue to 

stay abreast of USAID’s efforts to improve its planning for and delivery of disaster 

recovery assistance. 

- - - - - 

Mr. Chairman, this concludes my statement. I will be happy to address any questions the 

Subcommittee may have. 

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