United States General Accounting Office

GAO Report to Congressional Committees

December 1995 FORMER SOVIET

UNION

An Update on

Coordination of U.S.

Assistance and

Economic Cooperation

Programs

GAO/NSIAD-96-16

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-270020 

December 15, 1995

Congressional Committees

In February 1995, we reported that the executive branch lacked an

effective coordination mechanism for U.S. bilateral programs designed to

help the newly independent states of the former Soviet Union (FSU)

transform their centrally controlled economies into market-based

economies and to establish more democratic governments.1

 Specifically,

we reported that the State Department Coordinator’s authority was weak

and that the U.S. Agency for International Development (USAID) and the

other agencies using Freedom Support Act2

 funds were frequently

embroiled in disputes about implementation of their programs. Officials

representing several agencies acknowledged the problems we reported.

State and USAID officials subsequently testified to Congress that

coordination and interagency working relationships had improved.

This report (1) assesses efforts to strengthen the Coordinator’s authority

over bilateral FSU programs but identifies a new challenge to the

Coordinator’s authority and (2) analyzes the impact of changes in USAID’s

relationships with other agencies on interagency cooperation in

implementing Freedom Support Act programs. We are sending this report

to those committees that have primary responsibility for the U.S.

assistance program to the FSU.

Results in Brief Since our February 1995 report, the FSU Coordinator’s role has been

expanded to include oversight of all U.S. government bilateral programs in

the FSU, and his authority to review budgets and direct the interagency

process for program development and implementation has been

strengthened. Despite this, the Coordinator has been unable to effectively

exercise his authority to oversee the FSU anticrime program being financed

with Freedom Support Act funds.

Interagency cooperation in implementing Freedom Support Act programs

has improved, with fewer disagreements on program content.

1

Former Soviet Union: U.S. Bilateral Program Lacks Effective Coordination (GAO/NSIAD-95-10, Feb. 7,

1995).

2

Formally referred to as the Freedom for Russia and Emerging Eurasian Democracies and Open

Markets Support Act of 1992 (P.L. 102-511).

Page 1 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

Background In December 1990, the United States began to provide limited assistance to

the Soviet Union to show support for reform efforts. Following the

dissolution of the Soviet Union in December 1991, the United States

increased its commitments of assistance to the successor states. In

October 1992, the Freedom Support Act was enacted, again increasing

assistance to the FSU and establishing a multiagency approach to providing

assistance. The act called for the appointment of a Coordinator within the

Department of State whose responsibilities would include designing an

assistance and economic cooperation strategy for the FSU and ensuring

program and policy coordination among federal agencies in carrying out

the Freedom Support Act policies.

The act sets forth the broad policy outline for helping the FSU countries

implement both political and economic reforms. It also authorizes a

bilateral assistance program that is primarily being implemented by USAID.

In addition, other legislation authorized bilateral programs, including loan

and loan guarantees to promote the export of agricultural and other

products, and assistance in dismantling nuclear weapons in the FSU.

Twenty-three government agencies have obligated $5.4 billion for grant

technical assistance programs, exchange programs, training, food and

commodity donations, mutually beneficial science and technology

projects, and support of joint space efforts. Two programs—the Freedom

Support Act Program and the Cooperative Threat Reduction

Program—represent nearly half the obligations for grants for technical

assistance, exchanges, and other grant-funded programs. The U.S.

government also made available $10 billion in credit for bilateral loans,

loan guarantees, and insurance programs for the period fiscal year 1990

through December 1994.3

 Trade and investment programs sponsored by

the Department of Agriculture, the Export-Import Bank, and the Overseas

Private Investment Corporation constitute most of the credit/insurance

programs.

3

Former Soviet Union: Information on U.S. Bilateral Program Funding (GAO/NSIAD-96-37, Dec. 15,

1995).

Page 2 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

The Coordinator’s

Role Has Been

Strengthened, but

Improvements

Needed in Anticrime

Programs

On April 4, 1995, the President strengthened the role and authority of the

Coordinator in a memorandum designating him as a Special Advisor to the

President and to the Secretary of State on assistance to the FSU.

4

 The

memorandum specifies that the Coordinator will

“preside over the allocation of U.S. assistance resources and direct and coordinate the

interagency process on the development, funding, and implementation of all U.S.

Government bilateral assistance and trade and investment programs related to the NIS

[New Independent States].”

The memorandum further specifies that to enable the Coordinator to

effectively carry out his responsibilities

“the Departments of Defense, Treasury, Justice, Commerce, Agriculture, Health and Human

Services, and Energy, the Agency for International Development, the United States

Information Agency, Peace Corps, Environmental Protection Agency, National Aeronautics

and Space Administration, Nuclear Regulatory Commission, Overseas Private Investment

Corporation, Trade and Development Agency, and Export-Import Bank, and any other

Executive departments and agencies with activities related to the NIS bilateral assistance

and export and import activities are directed, to the extent permitted by law, to bring all

programs and budget plans for such assistance and activities to [the Coordinator] for

review before submission to the Office of Management and Budget and before

implementation. [The Coordinator] shall be responsible for ensuring that all such plans are

consistent with Administration priorities and policies.”

This charter explicitly expanded the Coordinator’s role in overseeing other

agencies’ programs, such as the Department of Defense’s Cooperative

Threat Reduction Program and the Export-Import Bank’s trade and

investment programs.

Even though the FSU Coordinator’s role and authority have been expanded,

the Coordinator has had no control over the FSU anticrime assistance

program. Rather, the Department of State’s Bureau for International

Narcotics and Law Enforcement Affairs (INL)5

 controls the program, and

disagreements between the Coordinator and INL have inhibited the

development of an integrated approach to anticrime assistance in the FSU.

For example, in May 1994, the Coordinator noted that INL had suggested

funding levels to a key congressional committee before discussing the

4

The initial May 19, 1993, Coordinator’s Charter had been signed by the Assistant to the President for

National Security Affairs and specified that the Coordinator would report to the Ambassador-at-Large

and a Special Assistant to the President.

5

The Bureau for International Narcotics Matters was renamed the Bureau for International Narcotics

and Law Enforcement Affairs in February 1995.

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B-270020 

matter with the Coordinator or the Russian government. He also stated

that INL had requested proposals from law enforcement agencies before

the Coordinator had determined an effective policy framework for

assistance.

Other documents as recent as June 1995 show the Coordinator’s continued

unsuccessful efforts to integrate INL activities into overall reform

programming. Both INL and the Coordinator have working groups

responsible for planning assistance in the anticrime area. While the chair

of each working group participates in the other group’s meetings,

relationships between the two working groups have been strained. More

importantly, however, the anticrime working groups have not integrated

their programs with activities involving banking reforms, privatization, and

capital markets development, all areas susceptible to criminal corruption.

Cooperation and

Coordination Among

Agencies Has

Improved

In February 1995, we reported a pattern of disputes centering on money

and policy between USAID and other agencies involved in implementing

Freedom Support Act activities in the FSU. Dissension had arisen partly

because (1) USAID attempted to exclude other agencies from taking part in

FSU programs by not providing funds and (2) agencies perceived that they

were relegated to the role of a contractor. Since that time, relations among

the agencies have improved, largely because of a change in the way funds

are transferred and USAID’s efforts to engender cooperation and

coordination from other agencies.

USAID’s Relationship With

Agencies Varies With the

Type of Transfer

Agreement

USAID is the primary implementing agency for assistance, although it also

acts as a bank through which the State Department Coordinator

distributes money. USAID participates to varying degrees in all sectoral

working groups for FSU assistance. It also receives and reviews proposals

for projects from U.S. government agencies and independent contractors

and advises the Coordinator in the selection of projects. USAID mission and

headquarters officials meet with officials of the FSU to gather information

and strongly influence project development. USAID is also accountable for

ensuring that (1) funds are properly transferred to other agencies through

the appropriate transfer mechanism, (2) the proper Treasury accounts are

being used to effect a transfer, and (3) transfers are accurately reported.

USAID transfers or allocates money to an agency by an agreement

authorized under either section 632(a) or section 632(b) of the Foreign

Page 4 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

Assistance Act.6 When USAID transfers or allocates funds under section

632(a), USAID’s agreement with the recipient agency does not obligate the

funds. The recipient agency, then, obligates and expends the funds in

accordance with (1) authority governing its own activities, (2) authorities

granted in the Foreign Assistance Act, or (3) a combination of these

authorities. For example, in making procurements, an agency may follow

its own or USAID’s regulations. Under this type of agreement, USAID has

minimal management responsibility for approving the agency’s activities.

On the other hand, USAID agreements made under section 632(b) directly

obligates the funds to the recipient agency and USAID retains greater

control over how the funds are used and accounted for. USAID and the

recipient agency negotiate what the agency is to do under the program,

and the agreement usually requires that the recipient agency follow USAID’s

procurement rules. Under this type of agreement, the recipient agency

either requests an advance or reimbursement for actual services rendered.

USAID also obligates funds to agencies carrying out FSU programs under a

Participating Agency Service Agreement (PASA) and is responsible for

requesting the participating agency’s services.

USAID and Agencies Have

Worked to Better Their

Relations

Our February 1995 report pointed out that the Coordinator’s role had been

complicated by the existence of serious disagreements between agencies

over various aspects of the program. Also, USAID had been involved in

numerous disputes with other government agencies over money and

policy. To test whether interagency relationships had changed, we

reviewed the relationship of USAID with 10 agencies, with a focus on 

11 interagency transfers made after May 1994. In these cases, we found

that the agencies cooperated and coordinated better than they had in the

past, and there was less acrimony involved in implementing programs in

the FSU. Several factors led to this change. For example, USAID has made

greater use of section 632(a) transfers, where the State Department

Coordinator, rather than USAID, reviewed and approved the implementing

agency’s plans for program funding, content, and implementation.

Moreover, USAID has taken the lead in establishing more cooperative

relationships than it has had in the past.

Leadership by the USAID Assistant Administrator for Europe and the New

Independent States, and USAID’s control over program content, funding,

and implementation of projects in certain sectors, such as agriculture and

the environment, have reduced disagreements. In these and other sectors,

6

See 22 U.S.C. 2392(a) and (b).

Page 5 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

USAID has used section 632(b) transfer authority or a PASA to carry out its

own, rather than the implementing agency’s, program priorities. As noted

previously, under a 632(b) transfer agreement or a PASA, USAID as the

accountable agency, sets standards and imposes its judgments about

project planning and implementation of its sector strategies. Although the

implementing agencies have at times disagreed with USAID’s decisions on

funding and priorities, they have largely stopped protesting those

decisions to the Coordinator as they did in the early days of the FSU

program. According to officials at two agencies, it was not worth their

effort to raise the disputes with USAID to a higher level.

Agency Comments

and Our Evaluation

The Departments of State, Agriculture, Commerce, Defense and Energy;

the Environmental Protection Agency; the Food and Drug Administration;

the Overseas Private Investment Corporation; the Peace Corps; the Trade

and Development Agency; the U.S. Information Agency; the Centers for

Disease Control and Prevention (CDC); and USAID were provided an

opportunity to comment on a draft of this report. State and USAID provided

written comments (reprinted in their entirety in appendixes I and II,

respectively), and the Department of Energy and CDC provided oral

comments, which have been incorporated in the report as appropriate.

The agencies commenting on this report generally agreed that

(1) coordination had improved, (2) the Coordinator’s role had been

strengthened, and (3) cooperation among implementing agencies had

improved. USAID indicated that it supported the report’s findings and

conclusions. State acknowledged that serious friction had existed between

the Coordinator and INL regarding the anticrime assistance program;

however, State asserted that these disagreements have been resolved.

State indicated that (1) the Coordinator and INL had met and agreed upon

the policy framework for law enforcement assistance funded under the

Freedom Support Act and (2) staffs were working closely. However, State

commented further that it is significant that “law enforcement assistance

involves very different programs and pursues different aims than does the

bulk of our assistance efforts.”

We noted, however, that the meeting between the Coordinator and INL

referred to by State occurred on October 24, 1995. Consequently, it is too

early to know whether the problem State acknowledged has been

resolved. Moreover, the agreed-upon policy framework State cited does

not represent a plan to integrate law enforcement assistance with other

assistance. Instead, the Coordinator gave to INL management responsibility

Page 6 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

for the law enforcement component, allowing this assistance to remain

distinct from other related assistance.

Scope and

Methodology

We reviewed the bilateral programs for the FSU and the interagency

structure for the programs’ coordination over the period July 1994 through

July 1995. To examine interagency relationships, we reviewed 11 USAID

transfers to the following 10 agencies: the Department of Agriculture, the

Department of Health and Human Services’ Center for Disease Control and

Food and Drug Administration, the Department of Commerce, the

Department of Energy, the Environmental Protection Agency, the U.S.

Information Agency, the Overseas Private Investment Corporation, the

Peace Corps, and the Trade and Development Agency.

We included agencies whose relations with USAID we had examined in our

previous report, agencies with trade and investment programs

representing the new emphasis of the Freedom Support Act program, and

agencies with particularly large transfers during the period under

consideration. Except for the Commerce Department, we identified one

transfer that took place from July 1994 through June 1995. We examined

two transfers at the Commerce Department that were originally planned as

one transfer but had been split into two separate transactions. We

interviewed officials from the 10 agencies, the Coordinator’s Office, and

USAID about both overall interagency relationships and the particular

transfers we reviewed.

We conducted our work from March to September 1995 in accordance

with generally accepted government auditing standards.

We are sending copies of this report to the Secretaries of State, Defense,

and Agriculture; the Administrator, USAID; and the Director, Office of

Management and Budget. Copies will also be made available to others on

request.

Page 7 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

Please contact me at (202)512-4128 if you or your staff have any questions

concerning this report. Major contributors to this report are listed in

appendix III.

Harold J. Johnson, Director

International Affairs Issues

Page 8 GAO/NSIAD-96-16 Former Soviet Union
B-270020 

List of Addressees

The Honorable Jesse A. Helms

Chairman

The Honorable Claiborne Pell

Ranking Minority Member

Committee on Foreign Relations

United States Senate

The Honorable Mark O. Hatfield

Chairman

The Honorable Robert C. Byrd

Ranking Minority Member

Committee on Appropriations

United States Senate

The Honorable Benjamin A. Gilman

Chairman

The Honorable Lee H. Hamilton

Ranking Minority Member

Committee on International Relations

House of Representatives

The Honorable Bob Livingston

Chairman

The Honorable David R. Obey

Ranking Minority Member

Committee on Appropriations

House of Representatives

Page 9 GAO/NSIAD-96-16 Former Soviet Union
Appendix I 

Comments From the Department of State

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 10 GAO/NSIAD-96-16 Former Soviet Union
Appendix I 

Comments From the Department of State

See comment 1.

Page 11 GAO/NSIAD-96-16 Former Soviet Union
Appendix I 

Comments From the Department of State

The following are GAO’s comments on the State Department’s letter dated

October 31, 1995.

GAO Comments 1. Our draft report raised a concern that the planned structuring of the

former Soviet Union (FSU) program budget in fiscal year 1996 may have

weakened the Coordinator’s ability to successfully exercise his authority

over programs funded through the Freedom Support Act. Specifically, the

executive branch proposed that some FSU programs, previously under the

Freedom Support Act, be funded from the agencies’ own appropriations.

Congress rejected the executive branch’s proposal1

 and, accordingly, we

have deleted our discussion of this issue from the report.

1

See “Joint Explanatory Statement” to the Conference Report on H.R. 1868, making appropriations for

foreign operations for fiscal year 1996. (H. Rept. 104-295 at pages 45-46)(1995).

Page 12 GAO/NSIAD-96-16 Former Soviet Union
Appendix II 

Comments From the Agency for

International Development

Page 13 GAO/NSIAD-96-16 Former Soviet Union
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Louis Zanardi

Richard Boudreau

John DeForge

Maria Oliver

Resources,

Community, and

Economic

Development

Division, Washington,

D.C.

Sarah Veale

Isidro Gomez

(711125) Page 14 GAO/NSIAD-96-16 Former Soviet Union
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