GAO

United States General Accounting Office

Report to the Chairman, Committee on 

Foreign Relations, U.S. Senate

September 2000 INTER-AMERICAN 

FOUNDATION

Better Compliance 

With Some Key 

Procedures Needed

GAO/NSIAD-00-235

Page 1 GAO/NSIAD-00-235 Inter-American Foundation

Contents

Letter 3

Appendixes Appendix I: Comments From the Inter-American Foundation 26

Appendix II: Comments From the Department of State 35

Appendix III: GAO Contacts and Staff Acknowledgments 37

Figures Figure 1: Program Profile of IAF Grants Awarded, Fiscal Year 1999 7

Figure 2: IAF Grant Selection Procedures 10

Figure 3: IAF Grant Auditing and Monitoring Procedures 11

Figure 4: Number of Months Between the IAF’s First Disbursement 

of Funds and Receipt of First Audit Report 17

Abbreviations

IAF Inter-American Foundation

USAID U.S. Agency for International Development
Page 2 GAO/NSIAD-00-235 Inter-American Foundation
Page 3 GAO/NSIAD-00-235 Inter-American Foundation

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-286177 Letr

September 28, 2000

The Honorable Jesse Helms

Chairman, Committee on Foreign Relations

United States Senate

Dear Mr. Chairman:

In 1969, Congress created the Inter-American Foundation, a government 

corporation, as an experimental agency to support grassroots development 

in Latin America and the Caribbean. A nine-member board of directors 

appointed by the President and confirmed by the Senate governs1

 the 

Foundation. In creating the Foundation, the United States broadened its 

foreign assistance strategy by channeling financial resources to the poor 

through nongovernmental organizations rather than solely through 

governmental entities. Since that time, other government-related entities 

and governmental agencies, such as the U.S. Agency for International 

Development, have started programs that also provide assistance through 

nongovernmental organizations directly to the poor.

 The Foundation has awarded over 4,250 grants, totaling about 

$500 million, since its inception to support activities such as agriculture 

and community development, microenterprise2

 development, and 

education and research. The Foundation’s policy is to award grants only to 

organizations that have not engaged in any type of illegal, political, or other 

activity or behavior that would make them unsuitable to receive a grant 

from the U.S. government. Due to a range of concerns about the 

Foundation’s activities and management practices, Congress reduced 

appropriations to the Foundation from an average of the $21 million it 

received during the last 4 years to $5 million in fiscal year 2000.

As a part of the ongoing debate on the continuing relevance and funding 

level for the Foundation and its management practices, you raised 

concerns about how the Foundation awards, monitors, and administers its 

1

Currently, six of the nine board positions are vacant.

2

Microenterprises are firms with 10 or fewer employees, including the microentrepreneur 

and any family workers. 
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Page 4 GAO/NSIAD-00-235 Inter-American Foundation

grants and whether it duplicates efforts of the U.S. Agency for International 

Development. As agreed with your office, this report (1) describes the 

Foundation’s procedures for selecting organizations to receive grants, 

monitoring grantee organizations’ compliance with grant agreements, and 

auditing grantees’ use of funds; (2) analyzes the extent of the Foundation’s 

compliance with these procedures; and (3) discusses the extent to which 

the Foundation provides grants to organizations that also receive financial 

support from the U.S. Agency for International Development. 

To assess compliance with the Foundation’s procedures, we examined 

program and financial data for a random sample of 50 of the 86 Foundation 

grants that were completed and terminated in fiscal year 1999. 

Results in Brief The Inter-American Foundation has established several key procedures to 

assure that it awards grants to appropriate organizations and that grantees 

observe the terms of grant agreements. These procedures include (1) the 

submission of annual financial disclosure reports from staff, officers, and 

members of the board of directors to assure the Foundation’s activities are 

free of conflicts of interest; (2) internal reviews by Foundation staff and 

senior officers to assess the merits of new grant proposals; (3) visits to 

potential grantee organizations in the country of the grantee organization 

to obtain information on potential grantees before the Foundation awards 

its grants; (4) annual oversight staff visits to grantee organizations to 

monitor implementation of grants and visits to embassies to share 

information concerning grantee activities; (5) periodic visits to grantee 

organizations by Foundation contractors to monitor grants and submission 

of reports on program results; (6) receipt of required financial and progress 

reports from grantee organizations before disbursing funds; and 

(7) regularly scheduled audits by independent auditors to assess the 

grantees’ use of U.S. resources. 

Our analysis showed that the Foundation’s compliance with its key 

procedures has been mixed. The Foundation fully complied with 

procedures requiring the submission of financial disclosure reports, the 

performance of internal reviews of new proposals, and the disbursement of 

funds only after the review of required financial and progress reports. 

However, we found compliance problems in the following areas. For only 

10 percent of the grants we reviewed did the Foundation’s staff meet its 

requirements to make annual monitoring visits to grantee organizations 

and document the results. Further, it met its requirement to visit embassies 

and document the results for only 63 percent of the time its staff made 
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country visits. In addition, Foundation contractors submitted required 

monitoring reports for only 50 percent of the grants in our sample. Finally, 

in only 25 percent of the grants in our sample were financial audit reports 

submitted within a reasonable time frame. We could not assess the extent 

of the Foundation’s compliance with its requirement to visit potential 

grantee organizations before the award of a grant because the grants in our 

sample were approved before the Foundation required staff to document 

their visits. The underlying cause for the low compliance with some 

established procedures was the Foundation’s lack of management controls 

and oversight to ensure that procedures were being followed. The 

Foundation has recently taken some steps to address these issues. For 

example, in July 2000, it expanded the role of its internal auditor to monitor 

the effectiveness of the Foundation’s operations, policies, and procedures. 

However, although this step may help the Foundation to identify and 

correct compliance problems after they occur, the Foundation has not 

developed specific mechanisms to provide reminders or incentives for staff 

to comply with required procedures as they carry out their duties.

Although the Foundation and the U.S. Agency for International 

Development generally operate in the same countries in Latin America and 

the Caribbean, and both agencies fund microenterprise development 

projects, they do not, with very few exceptions, fund the same 

organizations. The Foundation typically awards grants to small, grassroots 

organizations, while the U.S. Agency for International Development 

focuses on supporting larger, well-established international organizations 

whose resources reach large groups of individuals. Since fiscal year 1998, 

the Foundation’s criterion for grant selection is to award grants to 

organizations that have not received support from the U.S. Agency for 

International Development. 

We are recommending that the President of the Inter-American Foundation 

develop a management control mechanism to facilitate compliance with 

key procedures designed to assure that appropriate organizations receive 

grants and grant activities are carried out as intended. 

In commenting on a draft of this report, the Department of State said the 

Foundation has recognized most of the deficiencies we cited and had taken 

steps to remedy them. The Inter-American Foundation stated that the 

report disproportionately emphasizes the Foundation’s shortcomings at a 

time when its efforts to improve management and oversight are just 

becoming evident. We disagree with the Foundation’s comments and 

believe that our work reflects improvements made by the Foundation as 
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well as areas needing improvement. The Foundation also stated that the 

report overstates the extent of its noncompliance with certain key auditing 

and monitoring requirements, because we assessed grant performance 

using Foundation policies that had not yet taken effect. We disagree with 

the Foundation’s comments. In reviewing the 50 grants, we recognized that 

the Foundation’s policies changed over the life of the grants and took care 

to apply the appropriate policies in each area we assessed.

Background Congress created the Inter-American Foundation (IAF) in 1969 to expand 

economic opportunities to the poor not reached by U.S. 

government-to-government programs in Latin America and the Caribbean. 

The IAF funds projects that support self-help, participatory, local 

development initiatives from nongovernmental, private, and nonprofit 

organizations and provides grants to the organizations directly. The average 

size of the grants awarded in fiscal year 1999 was about $186,000; the 

largest was about $458,000. Grants generally last 2 to 3 years.3

 Food 

production and agricultural projects comprise 42 percent of IAF grants 

awarded in 1999. One such grant provided about $190,000 to an 

organization in Peru to help 300 farmers improve their farming techniques 

and learn how to process oregano. The next largest category in 1999 was 

microenterprise development, making up 34 percent of IAF grants. For 

example, one fiscal year 1999 project provided $190,000 to establish two 

loan funds to support income-generating activities carried out by 

indigenous women in Mexico. Specifically, the loans will assist the Mexican 

women to develop and implement marketing strategies in order to sell their 

local crafts both domestically and internationally. Figure 1 provides a 

profile of IAF grants awarded in fiscal year 1999 by type of activity. 

3

Prior to 1997, IAF routinely amended existing grants, which extended the duration of the 

grant for several years. This is no longer a common practice.
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Figure 1: Program Profile of IAF Grants Awarded, Fiscal Year 1999

Source: The Inter-American Foundation. 

IAF is funded by congressional appropriations and the Social Progress 

Trust Fund. The Social Progress Trust Fund is administered by the 

Inter-American Development Bank and consists of repayment of loans 

originally made by the U.S. government to various Latin American and 

Caribbean governments. These funds are available in the national 

currencies of 154

 countries in which the Foundation operates and may be 

spent only in those countries. The current agreement between the 

Foundation and the Inter-American Development Bank provided a total of 

$44 million over a 5-year period from the Social Progress Trust Fund for 

Foundation projects. When this agreement expires at the end of 2000, the 

Foundation will no longer have access to funds from the Social Progress 

Trust Fund.

4

The countries are Argentina, Bolivia, Brazil, Colombia, Costa Rica, Ecuador, El Salvador, 

Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Venezuela.

Community services

Agriculture/food production

Microenterprise

development

Education/training

Environmental

6%

7%

11%

34%

42%
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In 1998, IAF was informed of the involvement of three grantees in 

inappropriate or illegal activities. In May 1996 and again in July 1997, an 

IAF grantee organization issued public statements threatening the safety 

and well-being of an American citizen. By the time IAF was made aware of 

the threats in January 1998, as a result of congressional contact, the grant 

had expired and had not been renewed. Similarly, in February 1997, two 

IAF grantee organizations receiving IAF funds at that time supported the 

kidnapping of two American citizens and others in Ecuador. The 

kidnapping victims were eventually released unharmed. IAF did not know 

about the kidnapping incident until February 1998 when IAF officials 

contacted the U.S. embassy in Ecuador while investigating the prior 

incident. By that time, one of the organization’s grants had expired, and IAF 

terminated the other organization’s grant in April 1998, according to IAF 

documents. As a result of these two incidences, IAF revised its policy for 

selecting grantee organizations to preclude organizations with broad-based 

memberships that might potentially engage in political activities.

Key Elements of Grant 

Selection, Monitoring, 

and Auditng 

Procedures 

The Foundation’s procedures for awarding grants and for monitoring 

grantee organizations’ compliance with the grant agreements are outlined 

in its program operations guide. We identified several aspects of the 

Foundation’s procedures that are important for assuring that appropriate 

organizations received grants, which include 

• annual submission of financial disclosure forms by officers, the board of 

directors, and all employees involved in awarding grants or contracts to 

assure that IAF’s activities are free of conflicts of interest;

• internal reviews of grant proposals by staff and senior officers to 

identify proposals that best meet the Foundation’s funding policy; and

• staff visits to potential grantee organizations before grant approval to 

assess the merits of the proposal and the capacity of the organization to 

carry out the proposed activities.

The Foundation’s procedures for monitoring grantee performance and use 

of funds are also included in its program operations guide. We identified 

several aspects of the Foundation’s procedures that are important for 

effective oversight of grant activities, such as 

• review, before funds are disbursed, of financial reports and progress 

reports from the grantee organization that describe difficulties grantees 

encounter during grant implementation and their efforts to resolve 

them;
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• visits, at least annually, to monitor the grantee organization’s 

implementation of grants to determine if grant activities are carried out 

properly and effectively and to the U.S. embassy during each country 

visit to update embassy officials on grant activities and obtain their 

feedback, and document the results; and

• visits by contractors hired by IAF who are located in the country of the 

grantee organization to monitor the progress of grant activities, verify 

and complete program results data, and submit monitoring reports on 

the results. Since December 1997, IAF requires the contractors to 

submit reports that describe program results twice a year.

In addition, IAF requires audits, conducted by local independent 

accounting firms, to determine whether the grantee is effectively obtaining, 

controlling, and using U.S. funds in accordance with the grant agreement. 

The requirements and frequency for the financial audits are indicated in the 

grant agreement between IAF and the grantee organization. The audits are 

to be performed 6 months after the first disbursement of funds, every 

18 months thereafter, and at the completion of the grant. The Foundation’s 

internal auditor reviews each audit report submitted by the accounting 

firms and is responsible for taking action to resolve any discrepancies. 

Figures 2 and 3 illustrate the grant selection (including coordination), 

monitoring, and auditing processes.
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Figure 2: IAF Grant Selection Procedures

Source: Inter-American Foundation.

New step starting with fiscal year 2000 grants.

IAF solicits

proposals from

organizations

IAF solicits

proposals from

organizations

IAF receives

grant proposals

IAF receives

grant proposals

IAF screens

and

pre-selects

proposals

IAF screens

and

pre-selects

proposals

IAF reps visit

organizations

in country

of grant

IAF reps visit

organizations

in country

of grant

IAF teams

review proposals

that pass

field review

IAF teams

review proposals

that pass

field review

Program Director

reviews

proposals

in detail

Program Director

reviews

proposals

in detail

Vice President

for Programs

recommends

proposals for

approval

Vice President

for Programs

recommends

proposals for

approval

IAF

General Counsel

reviews

proposals

IAF

General Counsel

reviews

proposals

IAF President

reviews and

approves

proposals

IAF President

reviews and

approves

proposals

IAF solicits

comments from

U.S. embassy

on

proposed grant

IAF solicits

comments from

U.S. embassy

on

proposed grant

IAF

notifies board

and Congress of

approved grants

IAF

notifies board

and Congress of

approved grants

IAF

notifies embassy

of

approved grants

IAF

notifies embassy

of

approved grants

IAF

notifies embassy

of

active grants

IAF

notifies embassy

of

active grants
B-286177

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Figure 3: IAF Grant Auditing and Monitoring Procedures

Source: Inter-American Foundation.

Submits

progress

and financial

reports

Submits

progress

and financial

reports

Grantee

Organization

IAF

Contractor

IAF Staff and

Management

IAF Internal

Auditor

Independent

Auditor

Carries out

grant

activities

Carries out

grant

activities

Review

reports

Review

reports

Visit U.S.

Embassy to

exchange

information

Visit U.S.

Embassy to

exchange

information

Document

results

of trips

Document

results

of trips

Visit grantee

organizations

to assess

compliance with

goals and

objectives

Visit grantee

organizations

to assess

compliance with

goals and

objectives

Approve

disbursement

of funds

Approve

disbursement

of funds

Reviews

financial

reports

Reviews

financial

reports

Orders

independent

audit of

grant

transactions

Orders

independent

audit of

grant

transactions

Resolves

discrepancies

Resolves

discrepancies

Reviews

and

summarizes

audit report

Reviews

and

summarizes

audit report

Audits grantee

organization

Audits grantee

organization

Prepares and

submits

audit reports

Prepares and

submits

audit reports

Visits grantee

organization

Visits grantee

organization

Verifies and

completes

results data

Verifies and

completes

results data

Observes

grant

activities

Observes

grant

activities

Submits

monitoring

reports

Submits

monitoring

reports

Requests

funds

Requests

funds
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Compliance With Key 

Procedures Has Been 

Mixed

Our analysis of 50 randomly selected grants that terminated in fiscal year 

1999 as well as discussions with IAF, State, and U.S. Agency for 

International Development (USAID) officials found that IAF’s compliance 

with its key monitoring and auditing procedures was mixed. We found full 

compliance with procedures for identifying potential conflicts of interest, 

conducting required internal reviews of grant proposals, and disbursing 

funds after reviewing and analyzing the required reports. However, we 

could not test compliance with IAF’s requirement that staff visit potential 

grantee organizations because the grants in our sample were approved 

before IAF staff were required to document these visits. We found that IAF 

did not always comply with its requirements to visit grantee organizations 

and U.S. embassies during grant implementation and document the results 

and obtain reports from contractors hired to monitor programs. In 

addition, we found that independent auditors that IAF hired did not 

perform independent audits of the grants in a timely manner. We further 

found that the Foundation did not have a management control mechanism 

to better facilitate compliance with key procedures designed so that only 

appropriate organizations receive grants and that grant activities are 

carried out as intended. To help address this situation, IAF has expanded 

the role of its internal auditor to monitor the effectiveness of the 

Foundation’s operations, policies, and procedures.

IAF Complied With Conflict 

of Interest and Other 

Internal Review and 

Monitoring Procedures 

IAF complied with the requirements in three of the seven areas that we 

examined. To assure that its activities are free from conflicts of interest, 

IAF requires that certain individuals file financial disclosure reports 

annually. This requirement applies to all employees involved in contracting 

services, procuring goods, administering and monitoring grants, auditing 

any nonfederal entity, and engaging in other activities and actions that 

directly affect the economic interest of any nonfederal entity. In fiscal year 

1999, 45 individuals, including staff, officers, and board members, were 

required to file the reports. We compared a list of those required to file 

disclosure reports to the actual reports filed in fiscal year 1999. Reports 

were filed for all but two of the individuals on the list. Both individuals 

resigned in 1999. An IAF official stated that these individuals had filed 

disclosure forms in the past.

IAF procedures call for staff to prescreen proposals to assess the merits of 

the grant and the suitability of the organization to receive U.S. government 

funds. In addition, staff and senior officials, including the Vice President, 

the General Counsel, and the President, perform in-depth reviews of the 
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Page 13 GAO/NSIAD-00-235 Inter-American Foundation

proposals that pass the prescreening process and are required to sign 

tracking documents indicating that the reviews have taken place. Our 

analysis showed that the review documents contained all the appropriate 

signatures for 100 percent of the grants in our sample. 

In addition, IAF’s procedures require that staff review financial and 

progress reports from the grantee organization before each grant 

disbursement is approved. We found IAF staff complied with this 

requirement for all 50 grants in our sample. 

Extent of IAF Visits to 

Grantees Is Uncertain

We could not assess the extent of the Foundation’s compliance with its 

requirement to visit potential grantee organizations before awarding grants 

because the grants in our sample were approved before the Foundation 

required staff to document their visits. IAF officials explained that although 

these visits were not documented, staff always visited potential grantee 

organizations prior to grant approval. To improve accountability in this 

area, since 1998 IAF has required its employees to submit reports 

documenting the required visits to potential grantee organizations. In these 

reports, staff are to document meetings and contacts and discuss the 

merits of the proposals and the capacity of the organizations to carry out 

proposed activities. To ensure that the reports are submitted, IAF initiated 

a new practice in June 2000 that requires staff to submit the trip reports 

before their travel vouchers are approved. 

In addition, in April 1999, to avoid incidents similar to those that occurred 

in Ecuador in 1997,5

 the board of directors, in dialogue with congressional 

committees, instructed IAF management to improve their grant selection 

procedures by developing a process to better consult with State and U.S. 

embassy officials about proposed grantees. At that time, discussions 

between IAF and embassy staff were informal, and IAF officially notified 

the embassy of the grants after they were approved. In response to the 

board’s instructions, the Foundation added a new step to its grant selection 

procedures. Starting with grants approved in fiscal year 2000, staff are to 

submit summaries of the grant proposals selected for in-depth reviews to 

the U.S. embassy in the country of the grantee organization for review and 

comment before the grants are approved. The purpose of the coordination 

procedures is to obtain information on (1) whether the potential grantee 

5

Two IAF grantee organizations supported the kidnapping of Americans who were 

subsequently released unharmed. IAF withdrew its support from the active organization.
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Page 14 GAO/NSIAD-00-235 Inter-American Foundation

organization has engaged in any type of illegal, political, or other activity or 

behavior that would make it unsuitable to receive a grant from the U.S. 

government and (2) whether the general objectives of the proposed project 

are compatible with U.S. foreign policy interests.

The U.S. embassies have established internal procedures to implement the 

new requirements. In August 1999, State and USAID sent directives to all 

diplomatic posts in Latin America and the Caribbean informing them of 

IAF’s new coordination requirement and directing them to establish 

implementing procedures. State and USAID instructed the embassies to 

develop procedures that provided for a lead office to send the grant 

proposal summaries to other sections of the embassy as appropriate, 

review the proposals, and draft a response from the Ambassador. 

In June 2000, we contacted the U.S. embassies in the 10 countries in which 

the IAF will fund new grants in fiscal year 2000 to determine if they had 

established procedures to implement the new coordination requirements. 

All of the embassies we contacted except for the posts in Bogota, 

Colombia, and Caracas, Venezuela, had received the guidance and had 

established implementing procedures. These embassies were subsequently 

notified of IAF’s new coordination requirements. The embassy officials we 

contacted said they had discussed proposed activities with IAF officials but 

thus far had received few proposals to review. As of June 2000, IAF had 

sent summaries of 17 grant proposals to embassies for review and received 

responses for 10 of the proposals. 

Field Visits During 

Implementation Not 

Conducted as Frequently as 

Required

We found that staff did not comply with the Foundation’s requirement for 

visiting the grantee organizations annually during grant implementation 

and documenting the results for 45, or 90 percent, of the grants in our 

sample of 50 grants. Before 1998, IAF required staff to visit the grantee 

organizations, but it did not require them to document the visits. Because 

of this situation, we could not determine whether staff performed the 

monitoring visits during most of the time the grants in our sample were 

active. At the beginning of 1998, according to IAF’s Acting President, the 

Foundation’s policies were revised to require staff to prepare a trip report 

for each country that is visited. The report is to document the grantees, 

beneficiaries, and others contacted and comment on the grantee’s progress 

in meeting the objectives of the grant.

We reviewed the Foundation’s trip reports covering 1998 and 1999 for the 

countries in which the grantee organizations were located. Analysis of 
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these reports revealed that IAF representatives met the requirement to 

conduct annual visits and document the results for only 5 grants, or 

10 percent of the grants, in our sample. IAF was unable to provide 

documentation to show that staff met the requirement to visit the grantee 

organizations once a year for the remaining grants in our sample. An IAF 

official stated that despite the information shown in the trip reports, it is 

unlikely that Foundation staff would not have visited a grantee 

organization at least once during a 2-year period. He stated that IAF has 

reemphasized the importance of the field visits to staff. For example, in 

1999 IAF issued written monitoring guidelines to the staff and made 

monitoring responsibilities a major element of their performance 

appraisals.

In addition, since 1997, IAF has required its staff to visit the U.S. embassy in 

the country of the grantee organization during every visit to the country. 

Our analysis of the trip reports for 1998 and 1999 showed no 

documentation of IAF staff visits to the embassies in 37 percent of the time 

when they made country visits. An IAF official explained that it is a matter 

of policy that Foundation employees visit the embassy each time they visit 

a country. The official attributed the problem to staff not consistently 

documenting all organizations they visited in the reports and stated that 

IAF needs to improve its documentation practices. He further stated that in 

1998, IAF officials sent a memo to staff that oversee the grants reminding 

them of the Foundation’s long-standing policy requiring meetings with U.S. 

embassy officials on all country visits.

Monitoring Reports Not 

Submitted as Often as 

Required

Our analysis of IAF grant files showed that IAF contractors had not 

submitted the required numbers of monitoring reports for 23, or 46 percent, 

of the grants that we reviewed. The contractors submitted the required 

number of reports for 25, or 50 percent, of the grants.6

 For one grant in our 

sample, no reports were provided because IAF did not have a contractor in 

the country during the period under review. For another grant, no report 

was provided because the contractor was not able to visit the project due 

to the damage caused by Hurricane Mitch. According to IAF, prior to 

December 16, 1997, the contractor’s statement of work specified the 

number of reports required. Beginning after December 16, 1997, IAF 

required the contractors to submit two reports a year.

6

These rates can be projected to the population of grants terminating in 1999 with margin of 

error of ± 10 percentage points.
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Page 16 GAO/NSIAD-00-235 Inter-American Foundation

An IAF official explained that in some cases the contractors might have 

discussed the program results with Foundation staff via telephone, even 

though there were no reports in the files. The IAF official acknowledged 

that reports are required and stated that because of budgetary and policy 

considerations, IAF is reducing the number of its grants; therefore, the 

workload for the Foundation employees and contractors will be more 

manageable in the future. 

Independent Audits Not 

Timely, and Some Unused 

Grant Funds Have Not Been 

Returned

We found that many of the audits to assess grantee organizations’ use of 

funds and compliance with the grant agreement were performed late and 

that audit discrepancies remain unresolved. IAF requires an audit covering 

the first 6 months of grant activity, and, although IAF procedures do not 

specify when the auditor should submit the audit report to the Foundation, 

IAF’s internal auditor stated that 9 months from the first disbursement is a 

reasonable time to receive the first report. Figure 4 shows the number of 

months between IAF’s first disbursement of funds and receipt of the audit 

report. 
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Figure 4: Number of Months Between the IAF’s First Disbursement of Funds and 

Receipt of First Audit Report

Source: GAO analysis of sample of 50 IAF grants (two grants were for less than $35,000 for 

which no audit is required).

We found that 36 of 48, or 75 percent, of the grants in our sample requiring 

audits were not received within 9 months after the first disbursement of 

funds. The graph shows a range of 7 to 43 months between the date of first 

disbursement and the time IAF received the first audit report.

Moreover, as of June 13, 2000, IAF had not received reports for 38 grants 

that ended between 1995 and 1999. The total amount of funds that have not 

been audited is about $3.7 million. IAF officials acknowledged that these 

audits have been untimely. They attributed the lateness to past vacancies in 

the internal auditor position, miscommunication between the independent 

auditors and the Foundation, and the lack of preparedness of the grantee 

organization. According to one official, the internal auditor position has 

been vacant three times since about 1996. He stated that the position is 

0

2

4

6

8

10

12

14

12

10

13

8

3

2

7 to 9 10 to 12 13 to 18 19 to 24 25 to 43 Not yet completed

Number of grants

Number of months
B-286177

Page 18 GAO/NSIAD-00-235 Inter-American Foundation

now filled and, because of the reduction in the number of grants, the 

auditor will have time to make sure the audits are completed on time. 

Our analysis showed that IAF had not obtained the return of about $130,000 

in unused grant funds that remained at the termination of five grants in our 

sample. About $74,000, or 57 percent of this amount, has not been collected 

because of a dispute between IAF and the grantee organizations over the 

calculation and use of exchange rates. At the time, according to IAF, the 

Foundation did not have established procedures for determining which 

exchange rate to use. IAF now has such procedures. In addition, about 

$54,000 of the uncollected funds are unused funds from a grantee 

organization that IAF has been unable to locate since the grant terminated. 

The remaining approximately $1,800 consists of unused grant funds 

temporarily frozen by the Ecuadorian government in the grantee 

organization’s bank accounts because of a banking crisis. IAF’s internal 

auditor is still trying to resolve these discrepancies.

Expanded Role for IAF’s 

Auditor

In July 2000, to assure compliance with procedures, IAF expanded the role 

of its internal auditor to monitor the effectiveness of the Foundation’s 

operations, policies, and procedures. Previously, the auditor’s sole role was 

to manage and review the audits of the Foundation’s grants. To accomplish 

this task, as of July 2000, the auditor will report directly to the Office of the 

President rather than the Office of Financial Management. The 

Foundation’s Acting President stated that the auditor would have the time 

to perform internal reviews as well as handle his other duties because the 

number of active grants has decreased.

IAF and USAID 

Generally Fund 

Different Organizations 

Although IAF and USAID fund some similar types of activities and operate 

in some of the same countries, they generally do not fund the same 

organizations. Both agencies provide grants to organizations to increase 

the availability of financial services, such as microenterprise loans, to the 

poor. For example, in fiscal year 1999, a typical IAF project in El Salvador 

provided about $297,000 over 2 years to an organization to establish 24 

credit funds. About $8 million, or 34 percent, of IAF’s program were for 

microenterprise projects in fiscal year 1999. Similarly, a typical USAID 

microenterprise project in El Salvador provided about $566,000 to an 

organization to improve the quality of financial services to poor clients by 

developing a consortium of nongovernmental organizations to provide 

financial and nonfinancial services to more than 15,000 clients. The vast 

majority of USAID’s microenterprise grants involve financial services 
B-286177

Page 19 GAO/NSIAD-00-235 Inter-American Foundation

programs. In fiscal year 1999, both agencies funded projects in Bolivia, 

Brazil, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, 

Nicaragua, Panama, and Peru.

IAF’s current policy for selecting grantee organizations is to provide grants 

to organizations that are not funded by USAID. According to an IAF official, 

the Foundation’s policy for approving grants has evolved over time, and at 

one time IAF was encouraged to co-fund organizations with USAID. 

However, during fiscal year 1998, IAF’s board of directors stressed the need 

for IAF to distinguish itself from other development agencies. To 

accomplish this task, the board suggested that the Foundation seek to 

support organizations that have not received previous USAID funding and 

that are unlikely to be funded by USAID. In fiscal year 1999, the search for 

new potential grantees that had not received previous IAF funding or 

support from other U.S. government foreign assistance programs became a 

primary focus of the Foundation.

IAF has provided grants to a few organizations in fiscal years 1998 and 1999 

that also received support from USAID. A comparison of about 200 IAF 

grants approved beginning fiscal year 1998 to a list of organizations 

involved in USAID’s microenterprise program yielded 6 IAF grantee 

organizations that were also funded by USAID. Most of these organizations 

received support from USAID indirectly through another organization. For 

example, in 1998, IAF awarded a grant of about $310,000 over 3 years to a 

nonprofit development association in Nicaragua to provide local, 

small-scale businesses with loans and training to improve their workplaces 

and strengthen their business skills and income-generating enterprises. 

Through the Public Law 480 title III program,7

 USAID donated agricultural 

commodities valued at about $100,000 from June 1996 to September 1999 

to the Nicaraguan government. The donated commodities were sold on the 

domestic market, and the revenue generated from the sale was used to 

finance a microenterprise credit fund for the same nonprofit association 

for which IAF awarded a grant. According to IAF’s Acting President, the 

Foundation’s policy of not awarding grants to organizations funded by 

USAID applies to organizations that receive funds directly, rather than 

indirectly, from USAID. 

7

Under this food assistance program, support, sometimes in the form of commodities or 

technical assistance, is provided through another organization or through the host country 

government.
B-286177

Page 20 GAO/NSIAD-00-235 Inter-American Foundation

The IAF official stated that IAF has sometimes awarded grants to 

organizations also supported by USAID because of special circumstances 

in the country of the grant. For example, in fiscal year 1999 IAF awarded a 

grant of about $458,000 to an organization in Nicaragua to help the people 

in the western region of that country recover from the damage caused by 

Hurricane Mitch by establishing a local-development small loan fund. This 

organization also received about $171,000 under USAID’s program for rapid 

reconstruction and sustainable recovery in Hurricane Mitch-affected areas 

of Nicaragua.

Although IAF and USAID awarded grants to a few of the same 

organizations, and fund similar microenterprise projects and work in some 

of the same countries, IAF and USAID officials stated that they do not 

consider their programs to be duplicative. IAF tends to support small, local 

grassroots organizations that are not generally reached by most other U.S. 

government entities, including USAID. For example, one USAID official 

overseas stated that many of the organizations that IAF usually works with 

would not qualify for USAID support, because they are too small to have 

the accountability systems USAID requires. Other USAID officials stated 

that they have sometimes referred organizations not eligible for USAID 

grants to IAF. USAID generally works with larger organizations, such as the 

World Council of Credit Unions and Catholic Relief Services. Most are 

umbrella organizations that funnel USAID assistance to member 

organizations. In contrast, IAF deals directly with the small groups that are 

members of the umbrella organizations.

The agencies’ approaches to developing projects and policies for selecting 

organizations also differ. IAF solicits proposals from local, grassroots 

organizations that identify local problems and design their own projects to 

solve those problems. It does not identify broad development needs for a 

country or design projects to meet those needs. In addition, IAF does not 

maintain a permanent presence overseas. In contrast, USAID identifies 

development needs, designs programs, and maintains a permanent 

presence overseas. While IAF stresses local development and gives 

preference in awarding grants to organizations to which it has not 

previously awarded a grant, USAID requires the organizations that it 

supports to have established performance records or be headed by 

experienced management teams. It also emphasizes large-scale projects 

that reach large populations.
B-286177

Page 21 GAO/NSIAD-00-235 Inter-American Foundation

Conclusions The Inter-American Foundation has complied with its procedures for 

requiring the submission of financial disclosure reports, performing 

internal reviews of new proposals, and disbursing funds only after it 

reviews required financial and progress reports from the grantee 

organization. It has also improved its grant selection procedures by 

developing a process to better consult with State and U.S. embassy officials 

about proposed grantees. Nevertheless, the Foundation does not have a 

mechanism in place for assuring that key procedures are implemented. 

Specifically, mechanisms are lacking to facilitate compliance with 

procedures for (1) documenting staff visits to monitor grantees and to 

embassies to share information concerning the grantees, (2) submitting 

contractor monitoring reports, and (3) receiving audit reports on a timely 

basis. Without such compliance, IAF does not have assurance that 

appropriate organizations are selected to receive grants and that grant 

activities are carried out as intended. IAF’s recent decision to expand the 

role of the internal auditor should help. However, assessing compliance 

after the fact is not enough to ensure that the procedures are actually 

followed.

Recommendation for 

Executive Action

In order to effectively oversee and monitor grantee activities, we 

recommend that the President of the Inter-American Foundation, with the 

board of directors’ approval, develop a management control mechanism to 

provide oversight of compliance with monitoring and auditing procedures 

designed to ensure that the appropriate organizations receive grants and 

grant activities are carried out as intended.

Agency Comments and 

Our Evaluation

We received written comments from the Inter-American Foundation and 

the Department of State. These are reprinted in appendixes I and II. State 

commented that the Foundation has recognized most of the deficiencies 

cited in our draft report and has taken additional steps to remedy them, 

particularly in ensuring that the Foundation maintains close contact with 

U.S. embassies in the countries of the grantee organizations. We agree that 

the Foundation has taken steps to improve its oversight of grantees, as 

evidenced by its establishment of several new procedures during the past 

few years. However, we believe that our analysis demonstrates that further 

steps are needed to assure greater compliance with grant monitoring and 

auditing procedures. 
B-286177

Page 22 GAO/NSIAD-00-235 Inter-American Foundation

The Foundation stated that the draft report disproportionately emphasizes 

the Foundation’s shortcomings at a time when its efforts to improve 

management and oversight are just becoming evident. We do not agree with 

the Foundation’s statements and believe that the draft is both balanced and 

accurate. The draft report (1) describes steps the Foundation is taking to 

better consult with State and U.S. embassy officials about proposed 

grantees and its recent decision to expand the role of its internal auditor to 

assess compliance with its requirements, (2) discusses areas of 

compliance, and (3) presents areas where better compliance is needed. 

The Foundation also stated that our report overstates the extent of 

noncompliance with its requirements for (1) documenting staff visits to 

grantees, (2) obtaining contractor monitoring reports, and (3) receiving 

audit reports on a timely basis. The Foundation stated that we did not use 

the appropriate policy for determining compliance in these areas. We 

disagree with the Foundation’s view and believe our report accurately 

reflects the extent of noncompliance. In reviewing the 50 grants, we 

recognized that the Foundation’s policies changed over the life of the 

grants and took care to apply the appropriate policies in each area we 

assessed. Where the Foundation’s policies were not formally issued or 

clearly documented, we relied on statements made by Foundation officials 

to determine the policy in place and the effective date of the policy. We 

afforded the Foundation with opportunities to provide additional 

documentation in each instance of noncompliance and where it did we 

incorporated the changes to our analysis prior to sending the draft report to 

the Foundation and State for comment. 

Specifically, we disagree with the Foundation’s statement that we used the 

wrong effective date for the policy requiring staff to document visits to 

grantee organizations and, as a result, overstated the extent of 

noncompliance. We were told by the Acting President that the policy to 

document visits took effect at the beginning of 1998. During the course of 

our review, the Foundation provided us several draft policy documents 

with varying effective dates for when the requirement was to start. In its 

comments on our report draft, the Foundation stated that its requirement 

for staff to document visits took effect in June 1998, however, the 

Foundation did not provide us any formal documentation to this effect. 

Even if we used June 1, 1998, rather than January 1998, as the starting date 

of the policy and eliminated grants expiring within 1 year from our sample, 

only 6 of 17 remaining grants would have met the requirement. In assessing 

the extent to which contractors submitted required monitoring reports, we 

used either the specific requirements which were included in the scopes of 
B-286177

Page 23 GAO/NSIAD-00-235 Inter-American Foundation

work in some contracts, or the Foundation’s general policy which required 

all contractors to submit reports twice a year beginning after December 16, 

1997. Finally, in absence of specific policies for assessing compliance with 

audit requirements, we used 10 months as the standard in our analysis even 

though the Foundation’s internal auditor stated that 9 months following the 

first disbursement of funds was a reasonable timeframe for expecting 

results to be submitted. 

State and the Foundation stated that our report found no overlap or 

duplication in missions between the Foundation and the U.S. Agency for 

International Development. However, our work focused on whether the 

Foundation and USAID awarded grants to the same organizations in the 

past and on the types of entities that each organization funds. We did not 

examine whether or not there is overlap between the missions of the 

Inter-American Foundation and USAID. 

See appendix I for GAO’s detailed response to the Foundation’s comments.

Scope and 

Methodology

To describe IAF’s procedures for selecting organizations to receive grants, 

monitoring grantee organizations’ compliance with grant agreements, and 

auditing grantees’ use of funds, we examined IAF documents such as the 

Foundation’s program office operations guide, audit guidelines, policy 

memorandums, minutes of meetings of the board of directors, and cables 

to the U.S. embassies between 1999 and 2000. We discussed the procedures 

and any planned improvements with senior officials at IAF, State, and 

USAID in Washington, D.C. We also contacted State and USAID officials at 

the U.S. embassy in Brasilia, Brazil; Bogota, Colombia; Santo Domingo, 

Dominican Republic; San Salvador, El Salvador; Guatemala City, 

Guatemala; Mexico City, Mexico; Managua, Nicaragua; Panama City, 

Panama; Lima, Peru; and Caracas, Venezuela, to discuss the extent of 

coordination with IAF. In addition, we contacted the current members of 

IAF’s board of directors to discuss the board’s role and responsibilities.

To analyze whether the Foundation complied with its procedures, we 

randomly sampled and reviewed the program, financial, and audit files for 

50 of the 86 grants that terminated in fiscal year 1999. With the exception of 

the monitoring reports from the contractors and the audit reports from the 

independent auditors, the required documentation in the files was in 

English. We used the services of a GAO employee fluent in Spanish to 

review the monitoring reports and other documents. We used a data 

collection instrument that incorporated IAF’s procedures in effect during 
B-286177

Page 24 GAO/NSIAD-00-235 Inter-American Foundation

the life of the grants. The population was limited to terminated grants 

because some of the requirements are not accomplished until the grant has 

been completed. Selecting ongoing grants would have resulted in missing 

data for many of the requirements. The sampling strategy resulted in 

population estimates with a precision of ± 10 percentage points.

To discuss the extent to which IAF awards grants to organizations that are 

also supported by USAID, we compared an IAF list of about 200 grants 

approved in fiscal years 1998 and 1999 to a list of organizations that 

participated in USAID’s microenterprise program during those same years. 

We also discussed the policies IAF and USAID use to select grantee 

organizations with officials from both agencies.

We performed our work from January 2000 through August 2000 in 

accordance with generally accepted government auditing standards. 

We are sending copies to David Valenzuela, Acting President, 

Inter-American Foundation; the Honorable Madeleine K. Albright, the 

Secretary of State; the Honorable J. Brady Anderson, Administrator, U.S. 

Agency for International Development; and interested congressional 

committees. We will also make copies available to others upon request.

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

have any questions concerning this report. Other GAO contacts and staff 

acknowledgments are listed in appendix III.

Sincerely yours,

Benjamin F. Nelson

Director, International Relations

 and Trade Issues
Page 25 GAO/NSIAD-00-235 Inter-American Foundation
Page 26 GAO/NSIAD-00-235 Inter-American Foundation

Appendix I

Comments From the Inter-American 

Foundation ApendxiI

Note: GAO comments 

supplementing those in the 

report text appear at the 

end of this appendix.
Appendix I

Comments From the Inter-American 

Foundation

Page 27 GAO/NSIAD-00-235 Inter-American Foundation

See p. 23.

See p. 22.

See comment 1.
Appendix I

Comments From the Inter-American 

Foundation

Page 28 GAO/NSIAD-00-235 Inter-American Foundation

See comment 2.

See comment 3.

See comment 4.
Appendix I

Comments From the Inter-American 

Foundation

Page 29 GAO/NSIAD-00-235 Inter-American Foundation

See comment 4.

See comment 5.

See comment 6.
Appendix I

Comments From the Inter-American 

Foundation

Page 30 GAO/NSIAD-00-235 Inter-American Foundation

See comment 7.

See comment 8.

See comment 9.

See comment 9.

See comment 9.
Appendix I

Comments From the Inter-American 

Foundation

Page 31 GAO/NSIAD-00-235 Inter-American Foundation

The following are GAO’s comments on the Inter-American Foundation’s 

letter dated September 7, 2000.

GAO Comments 1. The Foundation commented that none of our reviewers had Spanish 

capability, although most reports and material in the files are in 

Spanish. While the monitoring reports submitted by the contractors and 

the audit reports submitted by the independent auditors were in 

Spanish, the required documentation of Foundation compliance with 

procedures was in English. A GAO staff member fluent in Spanish 

reviewed the monitoring reports and other documentation in the files. 

We have revised our methodology section to reflect this review. The 

Foundation also faulted us for not making field visits. However, field 

visits were not necessary to assess compliance with the Foundation’s 

internal procedures for administering and monitoring grant activities 

because these procedures require staff to place in the Foundation’s 

grant files documentation showing compliance with Foundation 

procedures.

2. We disagree with the Foundation’s statement that we did not use the 

appropriate effective date for the policy to document staff visits to 

grantee organizations. We relied on statements made by the Acting 

President that the policy took effect at the beginning of 1998, because 

during the course of our review, the Foundation provided several policy 

documents in draft with varying effective dates. In its comments to a 

draft of our report, the Foundation stated that its requirement for staff 

to document visits took effect June 1, 1998; however, the Foundation 

did not provide formal written documentation of this requirement. As a 

result, we believe our analysis is correct as presented in the report. It 

should be noted that even if we used June 1, 1998, as the starting date 

for the requirement to document visits and eliminated the grants 

expiring within 1 year from our sample, only 6 of 17 remaining grants 

would have met the requirement.

The Foundation also stated that two grants in our sample expired in 

1997. We disagree with this comment. We selected our sample from a 

list that was provided by the Foundation of grants that terminated in 

fiscal year 1999.

For the grants in our sample where the Foundation did not have trip 

reports that documented the visit to the grantee, we requested other 

forms of documentation showing that the Foundation staff visited the 
Appendix I

Comments From the Inter-American 

Foundation

Page 32 GAO/NSIAD-00-235 Inter-American Foundation

grantee organization. In a couple of instances, the Foundation provided 

documentation, such as travel vouchers or notes, and we reflected the 

changes in our analysis. However, for most instances, the Foundation 

was not able to document required visits to grantees, and therefore we 

did not revise our report.

3. The Foundation stated that GAO did not apply the appropriate criteria 

for assessing whether contractors submitted monitoring reports for the 

grants in our sample. Specifically, the Foundation stated that the 

contractors for the El Salvador grants in our sample were not required 

to submit monitoring reports during the period that the grants were in 

effect. We disagree with this comment. The Foundation’s scope of work 

for its contractors in El Salvador states that they were required to 

submit monitoring reports twice a year beginning in December 1996 

through June 2000. Our analysis showed that 6 of the 14 grants in our 

sample from El Salvador met the requirement for submitting 

monitoring reports twice a year. We revised our report to describe in 

detail the criteria we used to assess compliance with this requirement.

For one grant in our sample, IAF stated that we applied the policy 

requiring monitoring reports to a grant that had expired a year before 

the policy was issued. We had, in fact, concluded that the contractor 

met the reporting requirement for this grant.

4. The Foundation took exception to the fact that we did not give it credit 

for having a 98-percent compliance rate for completing the audits and 

that the amount of uncollected funds we reported was not material. 

However, despite our requests, the Foundation did not provide us 

documentation of the total number of grants requiring audits for the 

period covered by our review. Therefore, we could not verify the 

Foundation’s compliance rate. 

The Foundation also stated that we applied inappropriate criteria in 

determining whether audits performed by independent contractors of 

grantee activity were late. The Foundation requires an audit after the 

first disbursement of funds to cover 6 months of grant activity, but it 

does not have an explicit policy stating when audit reports should be 

submitted. However, the Foundation’s internal auditor stated that 

9 months after the first disbursement was a reasonable time to receive 

the report. We counted reports as being late only if they were received 

at least 10 months from the date of the first disbursement. We added a 

chart to our report that provides the details of our analysis. 
Appendix I

Comments From the Inter-American 

Foundation

Page 33 GAO/NSIAD-00-235 Inter-American Foundation

As to the materiality of the $130,000 of uncollected, unused funds 

identified by grant audits, the Foundation did not provide 

documentation, so that we could confirm whether $62,004,160 was the 

total amount of grants outstanding. 

5. The Foundation stated that our analysis of its requirement for staff to 

visit embassies during each country visit did not take into 

consideration the various Foundation policies in effect at different 

times. We disagree with the Foundation’s view that we did not use the 

appropriate policy. Our assessment was based on the Foundation’s 

policy that took effect in 1997 requiring that staff visit embassies as part 

of every country visit. However, trip reports to document the visits 

were not required until 1998. Our analysis of the trip reports for visits 

that took place in 1998 and 1999 showed that for 56 country visits, IAF 

staff visited the embassy in the respective countries 35 times. 

6. The Foundation questioned our statement that the amount of grants not 

audited totaled $3.7 million rather than the $3.2 million the Foundation 

reported. As we explained to Foundation staff and officials, our 

analysis of the sample of 50 grants revealed two additional grants that 

had not been audited. We added the unaudited amount of the grants we 

identified to the amount IAF reported to arrive at the $3.7 million.

7. We revised the report to show the number of grants IAF reported.

8. We revised the report to remove the reference to the requirement that 

Foundation staff visit the U.S. embassy before the grant is awarded.

9. We revised the report to reflect the information provided by the 

Foundation that one grantee, not two, made statements threatening an 

American citizen. However, the Foundation’s statements concerning 

the status of the grantee involved in the threat and the involvement of 

grantees in a kidnapping are not supported by the documentation in the 

Foundation’s files. The Acting President stated that the organization 

that made the threat was a former grantee and that the organization 

later considerably “toned down” this statement in a letter to the 

Foundation. Our audit work, however, indicates that the grantee 

organization was receiving funds from the Inter-American Foundation 

at the time that it issued threats against the American citizen. Moreover, 

documentation provided by IAF does not show that the organization 

later toned down its statements. IAF also stated that one of the 

organizations that supported the kidnapping was a former grantee and 
Appendix I

Comments From the Inter-American 

Foundation

Page 34 GAO/NSIAD-00-235 Inter-American Foundation

that neither organization was involved in the demand for ransom. 

However, Foundation documents we reviewed stated that both 

organizations were receiving funds at the time of the kidnapping. 

Moreover, according to an internal Foundation memorandum, the 

grantees not only supported the kidnapping, but also signed, along with 

other indigenous groups, a document that raised the ransom demand to 

$2 million. We also provided additional details in the background to 

reflect these corrections.
Page 35 GAO/NSIAD-00-235 Inter-American Foundation

Appendix II

Comments From the Department of State ApendxiI
Appendix II

Comments From the Department of State

Page 36 GAO/NSIAD-00-235 Inter-American Foundation
Page 37 GAO/NSIAD-00-235 Inter-American Foundation

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Jess Ford (202) 512- 4128

Phyllis Anderson (202) 512-7364

Acknowledgments In addition to those named above, La Verne Tharpes, Norm Thorpe, and 

Mary Moutsos made key contributions to this report. Other contributors 

include Jack Edwards, Rona Mendelsohn, Jeanette Espinola, and Jody 

Woods.

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