Foreign Assistance: Continued Efforts Needed to Strengthen USAID's Oversight of U.S. Democracy Assistance for Cuba
Published: 2008-11-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Agency for International Development's (USAID)Cuba Program provides assistance to support human rights and promote nonviolent democratic change in Cuba. From 1996 through 2008, the program awarded $83 million in grants to nongovernmental organizations and universities. In 2006, GAO found weaknesses in program oversight that increased the risk of grantees' improperly using grant funds and failing to comply with U.S. laws. In 2008, misuse of grant funds at organizations with the program's two largest grants was detected. GAO was asked to examine (1) actions that USAID has taken since 2006, or plans to take, to improve its award and oversight of the Cuba Program's grants and (2) actions that USAID has taken in response to the recently detected misuses of grant funds. GAO analyzed USAID and grantee records, conducted limited reviews at five grantees, and interviewed agency and grantee officials.
section_title: What GAO Found
paragraphs: Since 2006, USAID has taken a number of steps to address identified problems with the Cuba Program's awards of democracy assistance and improve oversight of the assistance. For example, USAID has competitively awarded all Cuba Program grants since 2006, compared with 5 percent of grants awarded in 1995-2006; has hired more staff for the program office since January 2008; and contracted in April 2008 for financial services--such as reviews of grantee internal controls and procurement systems--to enhance oversight of grantees. USAID also has worked to strengthen program oversight by, for instance, ensuring preaward and follow-up reviews, improving grantee internal controls and implementation plans, and providing guidance and monitoring about permitted types of assistance and cost sharing. However, USAID has not staffed the Cuba Program at the level the agency has determined is needed for appropriate oversight; as of October 2008, the program office had five staff, compared with the 11 recommended in two USAID assessments. Further, because many of USAID's actions to improve oversight were initiated recently, their impact on the risk of the program grantees misusing grant funds or failing to comply with U.S. laws and regulations is not yet evident. In June 2008, for example, USAID's new financial services contractor found unsupported purchases at the organization with the program's largest grant. In response to the misuse of funds at organizations with the two largest Cuba Program grants, USAID suspended the two grantees in March and July 2008, respectively, pending the results of criminal investigations. To detect financial vulnerabilities at other grantees, USAID announced in mid-July 2008 that it would accelerate planned reviews of program grantees' procurement systems and initiate audits of their incurred cost, and it partially suspended two additional grantees pending the results of the procurement reviews. The program's other grants remained active pending the results of these reviews and audits. The procurement reviews--completed in August 2008 by the new financial services contractor--identified internal control, financial management, and procurement weaknesses at three grantees; USAID is working with the grantees to correct these weaknesses. The USAID Inspector General will oversee the incurred cost audits, which USAID expects to be completed by November 2008 under a separate contract with another firm.

section_title: Letter
paragraphs: Working through the U.S. Agency for International Development (USAID)  and the Department of State (State), the U.S. government provides  assistance intended to support human rights and to promote nonviolent  democratic change in Cuba through the development of Cuba’s civil  society. From 1996 through 2008, USAID’s Cuba Program awarded  grants totaling about $83 million to nongovernmental organizations  (NGO) and universities providing democracy assistance through a wide  range of activities, such as the provision of humanitarian aid, human rights  training, uncensored books and newsletters, and advocacy for human and  workers’ rights. For 2009, the administration has requested $20 million for  Cuba democracy assistance to be allocated between USAID and State.
In November 2006, we identified problems with USAID’s management and  oversight of its Cuba Program in 1996 through 2005. These problems  included the extensive use of noncompetitive awards and grant  modifications, as well as oversight weaknesses that increased the risk of  grantees’ improper use of grant funds and noncompliance with U.S. laws  and regulations. To help USAID address these problems, we made several  recommendations related to USAID’s oversight of the assistance. In 2006  and 2007, USAID said that it was taking steps to address our  recommendations and improve its management and monitoring of  democracy assistance for Cuba. However, misuse of grant funds by  employees of organizations with the two largest USAID Cuba Program  grants was reported in 2008.
You requested that we assess (1) actions that USAID has taken since 2006,  or plans to take, to improve its award and oversight of the Cuba Program’s  grants and (2) actions that USAID has taken in response to the recently  reported misuses of Cuba Program grant funds. To address these  objectives, we analyzed agency records, including meeting agendas and  minutes, draft and final changes to agency policy and guidance, and audit  and financial reports, including audit reports issued by the State and  USAID Inspectors General in July and September 2007, respectively. In  addition, we conducted a limited follow-up review of financial and other  records at 5 of 10 grantees we had analyzed in our 2006 report. We also  observed two grantee monitoring visits conducted by USAID Cuba  Program staff in June 2008. We interviewed agency officials, including the  current and former Cuba Program directors, contracting officials, and  auditors. We conducted this performance audit from May through July  2007 and from May through November 2008, in accordance with generally  accepted government auditing standards. Those standards require that we  plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe that the evidence obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives. (See app. I for additional details about our scope and  methodology.)
subsections: section_title: Background
paragraphs: The strategic objective of USAID’s Cuba Program—part of the agency’s  Bureau for Latin America and the Caribbean—is to help build civil society  in Cuba by increasing the flow of accurate information on democracy,  human rights, and free enterprise to, from, and within Cuba. The  responsibilities of the Cuba Program office include cochairing an  interagency working group, developing assistance strategies and  programs, recommending Cuba democracy assistance awards, and  monitoring the implementation of USAID grants. Because of the absence  of diplomatic relations between the United States and Cuba, USAID does  not have staff in Cuba and its Washington-based staff have been unable to  obtain visas to visit the island since 2002. State’s U.S. Interests Section  (USINT) in Havana plays a key role in implementing USAID’s Cuba  democracy assistance.
From 1996 through 2005, USAID’s Cuba Program awarded about $67  million in democracy assistance grants to NGOs and universities to  support numerous activities related to promoting democracy and  developing Cuba’s civil society. In 2005, for example, Cuba Program  grantees reported providing humanitarian and material assistance, training  for independent civil society groups, and uncensored information.  Several grantees also worked to increase international awareness of the  Cuban regime’s human rights record through activities such as sponsoring  conferences and publishing studies, while one grantee focused primarily  on planning for a democratic transition in Cuba. USAID records show that  Cuba Program grantees provided this assistance to, among others, human  rights activists, political dissidents, independent librarians, journalists, and  political prisoners and their families. From 2006 through 2008, USAID’s  Cuba Program awarded 10 new democracy assistance grants totaling  about $16.3 million, bringing the total value of grants since the Cuba  Program’s inception to about $83 million. As of October 2008, the Cuba  program had 13 grants totaling about $32 million; these grants ranged in  size from $500,000 to nearly $11 million.
Congress appropriated $45 million for U.S. democracy assistance for Cuba  in 2008; USAID has been allocated about $30 million of the 2008  appropriation, with the remainder allocated to State. (Fig. 1 shows the  funding for U.S. democracy assistance for Cuba for 1996-2008.) The  administration has requested $20 million for 2009; agency allocations for  these funds have not yet been established. Increased funding for  democracy assistance was a recommendation of the interagency  Commission for Assistance to a Free Cuba (CAFC). USAID’s Cuba  Program plans other substantial awards over the next few years.
The following summarizes our November 2006 report’s findings of  problems with the USAID Cuba Program’s awards and oversight of its  Cuba democracy assistance from 1996 through 2005.
Awards. USAID’s Cuba Program relied on unsolicited proposals to award  about 95 percent (about $62 million) of its democracy assistance, although  agency policy generally encourages competition for such awards. USAID’s  Cuba Program also frequently modified the amounts and length of existing  grants, increasing the aggregate value of these initial agreements from  about $6 million to about $50 million. In contrast, federal law and agency  policy generally favor a competitive process; moreover, closing grants and  initiating new ones has recognized advantages.
Oversight. Weaknesses in USAID’s oversight of its assistance grants  during the preaward, award, implementation, and closeout phases  increased the risk of grantees’ improper use of grant funds and  noncompliance with applicable laws and regulations. Preaward audits of  some grantees were not always completed before grant award, and USAID  did not follow up adequately to correct deficiencies identified by these  audits. Standardized language in grant agreements lacked the detail  necessary to support program accountability and the correction of grantee  deficiencies identified during preaward reviews. Moreover, the Cuba  Program office did not adequately identify, prioritize, or manage at-risk  grantees and did not have critical review or oversight procedures in place  to monitor grantee activities or cost sharing. Additionally, USAID did not  appear to routinely follow prescribed closeout processes to identify and  recover inappropriate expenditures or unexpended funds. Our limited  review of 10 grantees’ financial records identified questionable  expenditures and significant internal control weaknesses, which USAID  had not detected, at 3 of the grantees; we referred these problems to the  USAID Office of Inspector General.
Figure 2 shows our 2006 recommendations to strengthen USAID’s  oversight of the Cuba Program’s democracy grants. In 2006 and 2007,  USAID said that it was taking steps to address our recommendations and  improve its oversight of democracy assistance for Cuba.
section_title: USAID Has Taken Steps to Improve Awards and Oversight of Cuba Democracy Assistance, but Staffing for Oversight Is Not Yet Complete
paragraphs: Since 2006, USAID has taken steps to improve the Cuba Program’s award  and oversight of democracy assistance. To address identified problems  with awards, since 2006, the Cuba Program has competitively awarded all  democracy assistance grants and discontinued its use of funded grant  extensions. To improve its oversight of the grants, USAID has provided  additional resources to manage and oversee the Cuba Program’s aid and  implemented specific improvements in grant oversight to address our  recommendations. (See app. II, table 2, for a summary of our November  2006 findings and recommendations regarding the Cuba Program’s awards  and oversight of democracy assistance as well as USAID’s proposed or  reported corrective actions and the status of these actions.) However, as  of November 2008, USAID had not yet achieved the staffing level it  assessed as needed for appropriate oversight. Moreover, because many of  USAID’s actions to improve oversight were taken recently, their impact on  the risk of Cuba Program grantees’ misusing funds and failing to comply  with U.S. laws and regulations is not yet evident.
subsections: section_title: USAID’s Cuba Program Has Awarded Grants More Competitively and Discontinued Its Use of Funded Grant Extensions
paragraphs: USAID’s Cuba Program has competitively awarded all $16 million (10  grants) of democracy assistance since 2006. In comparison, during its  first 10 years, the Cuba Program competitively awarded only 5 percent  (about $4 million, 5 grants) of its democracy assistance. The increased use  of competition reflects the USAID Cuba Program’s implementation, in  2007 and 2008, of a policy of using competitive solicitation as the principal  method for awarding its democracy assistance grants.
Further, since 2006, USAID’s Cuba Program has discontinued its practice  of modifying existing grants to provide substantial additional funding  rather than awarding new grants and has implemented a policy that  requires grantees to submit interim evaluations in conjunction with any  future requests for additional funding. In 2006-2008, the Cuba Program  approved a limited number of no-cost grant extensions but did not  consider funded modifications to expand the program. Additionally, in  2007, the Cuba Program notified grantees that they would be required to  submit interim program evaluations when requesting significant increases  in funding or extensions; as of November 2008, the Cuba Program had  received no such requests.
Subsequent to these changes in the USAID Cuba Program’s practices and  policy, the percentage of its grantees that are worldwide or regional NGOs  increased while the percentage of grantees that are Cuba-specific NGOs  declined (see fig. 3). According to the Cuba Program Director, the shift in  grantee type reflects the more formal requirements for submitting a grant  proposal contained in the Cuba Program’s 2007 and 2008 annual program  statements, such as the requirement that proposals include a detailed  implementation plan. In addition, the shift reflects a decision, starting with  the 2008 program statement, to fund grants that incorporate capacity  building for subgrantees as an important element of program activity. The  Director noted that building subgrantee capacity supports the goal of  improving grant oversight, as well as the program goal of developing civil  society organizations that will be effective in assisting Cuba’s transition to  democratic governance and a free market economy.
section_title: USAID Is Taking Actions to Improve Oversight of Cuba Program Democracy Assistance, but Staffing Remains Incomplete and Impact of USAID’s Actions Is Not Yet Evident
paragraphs: USAID has recently taken, or plans to take, actions to increase the Cuba  Program’s resources for oversight. In addition, USAID has recently taken  actions aimed at improving specific aspects of the Cuba Program’s grant  oversight. However, staffing of the Cuba Program has not reached the  level that USAID has determined is needed to ensure adequate oversight.  In addition, in some cases the impact of these actions on the risk of Cuba  Program grantees’ misusing funds and failing to comply with U.S. laws and  regulations is not yet apparent.
subsections: section_title: USAID Is Increasing Resources for Cuba Program Grant Oversight
paragraphs: To increase resources aimed at improving the management and oversight  of Cuba Program democracy assistance, USAID established a Cuba project  committee comprising key USAID and State senior managers in December  2006; has hired more staff for the Cuba Program office since January 2008;  and contracted for financial services—including reviews of grantee  internal controls, procurement practices, and expenditures—to enhance  oversight of grantees in April 2008. In addition, the USAID Cuba Program  plans to use contract services to provide technical assistance and build the  capacity of its grantees, particularly smaller organizations.
Cuba project committee. USAID established a project committee in  December 2006 to lead the agency’s efforts to improve its management  and oversight of Cuba Program democracy assistance and provide greater  attention from senior management. This committee consisted of senior  officials from USAID’s Bureau of Management (which includes the Office  of Acquisition and Assistance) and General Counsel and State’s Bureau of  Western Hemisphere Affairs (including the Cuba Transition Coordinator),  in addition to the USAID Cuba Program Director. The committee met at  least quarterly to address Cuba assistance planning, preaward reviews,  and grantee monitoring and evaluation. According to USAID records,  topics of discussion have included (1) identifying high-risk grantees,  including outstanding audit issues, the need for follow-on reviews, and  review of grantees’ monitoring and implementation plans; (2) issuing a  communication to reinforce USAID guidance on preaward reviews and  stress the importance of timely follow-up to identified findings; (3)  reviewing standard grant provisions to ensure that grantees were provided  clear guidance on how to access referenced regulatory materials; (4)  obtaining and approving updated and expanded implementation plans  from certain grantees; and (5) obtaining detailed cost-share records from  contributing grantees and submitting them to the Office of Acquisition and  Assistance for review. In late 2007, USAID divided the project committee’s  responsibilities between two new committees.
Cuba Program staffing. Since January 2008, to improve its  implementation of Cuba democracy assistance, USAID has increased  staffing in the program office from two to five persons; however, staffing  remains short of the 11 persons recommended in USAID assessments. In  December 2007, in response to concerns expressed in our November 2006  report and a recommendation in a September 2007 report by USAID’s  Office of Inspector General, a formal USAID assessment recommended  staffing the program office with a director and eight staff to ensure  successful implementation of the program as well as appropriate  monitoring and oversight of grantees and grant funds. Subsequently, a  more informal assessment by the USAID Cuba Program office identified  the need for two additional staff. Based on these assessments, the Cuba  Program has hired three new staff members since January 2008, bringing  the total staff to five persons as of October 2008. According to the Cuba  Program Director, the program plans to hire two more staff members by  January 2009 and a third by July 2009 at the earliest.
Financial services contract. To strengthen grantee oversight and better  manage program risks, USAID’s Cuba Program contracted in April 2008  with a firm headquartered in Washington, D.C., to conduct 10 to 12  financial reviews annually over 2 years, at an estimated cost of $1 million.  USAID procured these services to strengthen program management and  provide grantees—particularly smaller, less experienced organizations— needed guidance and technical support as recommended in our 2006  report. According to the contract statement of work and related  documents, the contractor will (1) conduct annual financial reviews of  grantees, including grantees’ internal controls, procurement practices, and  expenditures; (2) follow up on the findings and recommendations of  preaward reviews and other audits to advise whether grantees have  corrected any weaknesses that were identified; and (3) conduct other  special reviews as needed. The contracting officer and the Contract Audit  Management Division within USAID’s Office of Acquisition and Assistance  review and approve all work plans (including research design, data  collection instruments, and analysis plans) and draft and final reports. In  June 2008, the contractor began reviews of Cuba Program grantees’  procurement systems, starting with three Miami-based grantees.
Program to build grantee capacity. To help improve the management  and oversight of Cuba democracy assistance, USAID’s Cuba Program has  taken initial steps to establish a means to provide essential training and  additional oversight of smaller grants using a “grants under contract”  mechanism. The decision to fund this program was based on USAID’s  assessment of grantee risk, particularly the risks posed by smaller, less  experienced grantees. USAID expects to start implementing this program  in 2009.
section_title: USAID Has Taken Specific Actions to Improve Cuba Program Grant Oversight
paragraphs: USAID has taken a number of actions specifically aimed at strengthening  oversight by ensuring preaward reviews and follow-up; improving grantee  internal controls and implementation plans; providing guidance and  monitoring for assistance and cost sharing; and developing structured  approaches for site visits and other monitoring.
Preaward reviews and follow-up. USAID has taken several actions to  ensure that preaward reviews are completed prior to grant awards. The  agency also has taken several actions to improve follow-up on issues  identified during preaward reviews. Since January 2007, the Cuba  Program, working though the Cuba project and internal management  committees, has worked to provide sufficient lead time for preaward  reviews and tracked the resolution of preaward review issues. In March  2007, USAID’s Office of Acquisition and Assistance issued an agencywide  bulletin that stressed the importance of (1) providing sufficient lead time  for the completion of preaward reviews and (2) timely follow-up and  resolution of deficiencies identified in those reviews. In 2007, USAID also  developed revised grant agreement language linking resolution of issues  and findings of preaward reviews and follow-up reviews to the obligation  of incremental grantee funding; to date, this language has been used in  grant agreements as appropriate. According to the Chief of the Contract  Audit Management Division within USAID’s Office of Acquisition and  Assistance, the Cuba Program’s planned use of the new financial review  services contract will help ensure timely follow-up on the results of  preaward reviews. Previously, competing demands on the division for  preaward and follow-up reviews by other USAID bureaus and offices had  delayed reviews for some Cuba grantees.
Grantee internal controls and implementation plans. USAID has  taken several actions to require that grantees establish and maintain  adequate internal control frameworks and develop approved grant  implementation plans.
Internal controls. The Cuba Program office provided grantees  guidance for accessing reference materials to relevant policies and  procedures on several occasions. This guidance included an addendum  for grant agreements, linked to relevant policies and procedures, that  USAID developed in March 2007 and that USAID records show was  provided to all grantees at, for example, grantee quarterly coordination  meetings and by e-mail. Grantees also were e-mailed a list of Internet  links for all statutory, regulatory, and legal references in their USAID  grant agreements. Additionally, in 2007, the Cuba Program office  developed a briefing outline to be used in explaining internal control  and other requirements to new grantees.
Implementation plans. In January 2007, the Cuba project committee  recommended that the Cuba Program (1) review grantees’ existing  implementation plans to ensure that such plans were documented and  adequate and (2) request that grantees with significant remaining grant  funding update and expand their implementation plans. The Cuba  Program completed its initial round of reviews in May 2007; follow-up  on recommended changes was completed April 2008. The approved  plans provide a monthly summary of anticipated activities to assist in  monitoring grantees and are to be updated annually. Further, in 2007,  the Cuba project committee recommended that the Cuba Program and  the Office of Acquisition and Assistance develop and include a new  provision in grant agreements to require that grantees submit written  implementation, monitoring, and evaluation plans for approval within  30 days of the award’s start date. In 2008, USAID officials agreed on  the grant provision, which has been included in agreements for new  awards.
Guidance and monitoring for assistance and cost sharing. USAID has  taken several steps to provide grantees specific guidance on permitted  types of assistance and on cost sharing and to ensure monitoring of  grantee expenditures for these items.
Permitted assistance. To prevent the use of grant funds for  inappropriate expenditures, as identified in our 2006 report, USAID  has provided grantees clearer, more detailed guidance regarding items  that may be provided as humanitarian or material assistance. In  addition, in early 2007, the Cuba Program required existing grantees to  include detailed lists of proposed items in their updated  implementation plans and requires such lists in the implementation  plans required to be submitted with new grant proposals. USAID  reports that these lists enhance oversight and monitoring of grantee  activities. In addition, the financial services contractor will verify  whether grantee assistance costs were allowable.
Cost sharing. USAID has provided agencywide guidance on cost  sharing and reviewed grantees’ cost-share contributions. In January  2007, as recommended by the Cuba project committee, USAID’s Office  of Acquisition and Assistance issued an agencywide bulletin that  reemphasized the restrictions and limits on cost sharing for grants and  clarified that USAID does not permit funds obtained from the National  Endowment for Democracy to be counted toward grantee cost-share  requirements. The cost-share policy is reflected in Cuba democracy  grant agreements. In January 2007, the Cuba project committee  recommended that the Cuba Program obtain detailed cost-share  records from grantees and submit these records to the Office of  Acquisition and Assistance for review. As of mid-June 2008, USAID had  completed its review of the cost-share records for all nine then-current  grantees with cost-share obligations and had found that three grantees  had not met a substantial share of their cost-share obligations. USAID  reduced one grantee’s cost-share obligation from $1,065,860 to  $523,450 and was following up with the other two grantees regarding  their failure to meet their cost-share obligations. During two site  (monitoring) visits that we observed in June 2008, USAID staff  reviewed the types of cost sharing permitted and emphasized the  importance of keeping adequate records to support cost-share claims.  In addition, the new financial services contractor will review grantee  support for cost-share claims.
Structured approach for site visits and other monitoring. USAID has  taken, or plans to take, several actions to develop and implement a more  formal, structured approach for site visits and other grant monitoring  activities. These actions taken included the following:   The USAID Cuba Program has developed and used a formal, structured  approach for its quarterly site visits to grantees. To facilitate and  ensure consistency in these visits, program staff use a form to describe  grantee activities, evaluate grantee accomplishments, and assess  compliance with grant internal control and other requirements.  During our observation of two site visits, we noted that USAID sent  copies of these forms to grantees via e-mail in advance of the visits so  that grantees could confirm the accuracy of basic data.
USAID reports taking initial steps to use information gathered to  identify at-risk grantees and prioritize monitoring. For example, in May  2007, after noting poor grantee record keeping during several site  visits, the former program Director e-mailed grantees to emphasize the  need to maintain adequate documentation in their offices of labor  costs, rent expenses, and telephone costs, as well as other records  needed to demonstrate that U.S. funds were being spent for the grants’  authorized purposes. USAID also has emphasized this requirement  during quarterly grantee coordination meetings and site visits. The  current Cuba Program Director told us that, using new staff resources,  she plans to develop and implement a formal system for performing  detailed analyses of the site visit results to identify at-risk grantees and  prioritize monitoring. As a first step, the Cuba Program recently  initiated quarterly reviews of the program’s portfolio of grantees to  identify at-risk grantees and other issues.
section_title: Impact of USAID’s Actions to Improve Oversight Is Not Yet Evident
paragraphs: Because many of USAID’s actions to improve its oversight of the Cuba  democracy grants were implemented recently, in 2007 and 2008, their  impact on the risk of grantees’ misusing grant funds or failing to comply  with U.S. laws and regulations is not yet evident. In mid-June 2008,  USAID’s financial services contractor’s review of financial records for  three Cuba Program grants found that one of the grantees—GAD—lacked  adequate support for some purchases. In late June 2008, we confirmed the  USAID contractor’s finding during our limited review of financial and  other records at 5 of the 10 grantees examined for our November 2006  report (see app. I for more information about this limited review).  Specifically, we identified several cases where substantial charges to  GAD’s credit card were not supported by receipts listing the items  purchased.
section_title: USAID Took Several Steps in Response to Reports of Misused Grant Funds but Has Not Provided for Ongoing Risk Management
paragraphs: In response to reports of fraud at organizations that had received the  USAID Cuba Program’s two largest democracy aid grants—CFC and  GAD—USAID suspended both grants pending the results of USAID  Inspector General investigations. Additionally, in mid-July 2008, USAID  decided to accelerate planned reviews of Cuba democracy grantees’  procurement systems under the April 2008 financial review services  contract and to conduct audits of grantees’ incurred cost under the  Inspector General; pending the results of those reviews and audits, USAID  partially suspended two more grants. The procurement reviews, which  were completed in August 2008, identified weaknesses at three grantees;  USAID is working with the grantees to correct these weaknesses. USAID  expects the incurred cost audits to be completed by November 2008 under  a contract with another firm.
CFC. In March 2008, USAID suspended its $7.2 million grant to CFC,  awarded in 2005, after the CFC’s Executive Director informed USAID that  the organization’s former Chief of Staff had misused USAID grant funds.  CFC’s grant expired on June 30, 2008, while it was suspended. In July 2008,  auditors from USAID’s Contract Audit Management Division within the  Office of Acquisitions and Assistance confirmed CFC’s estimate of the  amount of funds stolen and concluded that the grantee had taken action  to strengthen its system of internal control. On September 22, 2008, USAID  reinstated the grant for 6 months.
GAD. In July 2008, USAID suspended its $10.95 million grant to GAD,  which was awarded in September 2000. On June 30, 2008, GAD’s Executive  Director had informed USAID that, in following up on deficiencies that  USAID’s financial services contractor and we had identified earlier that  month, he had determined that one of GAD’s employees had used the  organization’s credit card to make unauthorized purchases for his personal  use; the employee had signed a statement admitting to these actions and  had promised to repay the cost of these items and had been fired. USAID  suspended the grant on July 2 and referred the matter to the USAID  Inspector General for investigation; as of November 2008, the grant  remained suspended, pending conclusion of the Inspector General’s  investigation and the results of a financial system review by the financial  review services contractor. The grant was scheduled to expire on  September 30, 2008, but USAID extended the grant to March 31, 2009, to  permit completion of the investigation and review.
On July 18, 2008, USAID announced that, to determine whether financial  vulnerabilities exist at grantees and how best to address them, it would  initiate reviews of the Cuba Program grantees’ procurement systems under  the April 2008 contract and subsequently conduct audits of grantees’  incurred cost under the USAID Inspector General. In addition, USAID  reported that it had partially suspended two smaller grants pending the  outcomes of the procurement reviews. The program’s other grants  remained active, based on USAID’s review of the grantees’ A-133 audits  and other relevant information, but pending the results of the procurement  reviews and incurred cost audits announced in July 2008.
Reviews of grantees’ procurement systems. In July 2008, USAID  instructed the financial services contractor hired in April 2008 to  accelerate planned reviews of current grantees’ procurement systems. The  procurement reviews, completed in August 2008, identified internal  control, financial management, and procurement weaknesses at three  grantees. On September 24, 2008, USAID lifted one of the two partial  suspensions after the grantee agreed to take several corrective actions.  USAID is assessing whether to lift the other partial suspension based on  grantee corrective actions, a change in grantee management, and other  factors. GAD, the third grantee where the review found weaknesses,  remains suspended. As of October 2008, the acceleration of the  procurement reviews had used nearly half (about $450,000) of the $1  million set aside for the 2-year financial services contract signed in April.  Further, USAID had not committed the additional funds needed to  continue the planned reviews of grantees’ internal controls, procurement  practices, and expenditures—key elements of the program’s approach to  reducing grantee risks—over the contract’s remaining 18 months.
Audits of grantees’ incurred cost. The USAID Inspector General will  oversee the audits of grantees’ incurred cost, to be conducted under a  separate contract with another firm. Initial work on the first three of these  audits began in mid-September 2008; the Inspector General expects to  complete nine audits by November 2008. USAID officials said that they  would take steps, as appropriate, to address weaknesses identified by  these audits. USAID estimated the total cost of these audits at about  $300,000 to $340,000.
Table 1 summarizes the status of USAID’s Cuba democracy grants as of  October 2008.
section_title: Conclusions
paragraphs: USAID has taken numerous actions since 2006 to improve the Cuba  Program’s award processes and oversight of grantees. However, some  planned actions have not yet been implemented. As recommended in our  November 2006 report, USAID took steps to improve the timeliness of  preaward reviews and resolve issues identified during those reviews and  has provided more specific guidance on permitted types of humanitarian  assistance and cost sharing. To provide resources and expertise, USAID  also contracted with a financial review services firm to follow up on audit  findings; review grantees’ internal controls, procurement practices,  expenditures, and cost sharing; and provide grantees needed technical  assistance. In addition, the Cuba Program now requires grantees to  develop implementation plans and has developed a structured approach to  monitoring grantees. However, staffing of the program office has not  reached the level USAID determined is needed for effective grant oversight  and, as a result, the office has taken only preliminary steps to implement a  key part of its risk management approach—that is, to systematically  analyze site visit and other grantee data to identify at-risk grantees and  prioritize its monitoring.
Moreover, the impact of USAID’s actions to improve the Cuba Program’s  risk management on grantee risk is uncertain because most of the actions  were taken recently. This uncertainty is underscored by the recent  findings—similar to those we reported in 2006—of grantees’ misusing  funds and of weaknesses in grantees’ internal control, financial  management, and procurement systems that have not yet been resolved.  Until the current audits of individual grantees’ incurred cost are completed  and the Cuba Program takes steps to address any known risks and prevent  their recurrence, the program’s ability to ensure the appropriate use of  grant funds remains in question.
section_title: Recommendations for Executive Action
paragraphs: To strengthen oversight of USAID’s Cuba Program grants and the  program’s ability to ensure the appropriate use of grant funds, we  recommend that the USAID Administrator take the following two actions:   ensure that the Cuba Program office is staffed at the level that is needed to  fully implement planned monitoring activities, such as the systematic  analysis of grantee data to identify at-risk grantees, and that the agency  has determined is necessary for effective oversight; and   periodically assess the Cuba Program’s overall efforts to address and  reduce grantee risks, particularly with regard to grantees’ internal  controls, procurement practices, expenditures, and compliance with laws  and regulations.
section_title: Agency Comments and Our Evaluation
paragraphs: USAID provided written comments on a draft of this report, which are  reprinted in appendix III, as well as technical comments that we  incorporated as appropriate.
In its written comments, USAID concurred with our recommendation to  staff the Cuba Program at levels needed to implement planned monitoring  activities. The agency said that it was working to ensure that the Cuba  Program has adequate staffing for strong program oversight and noted that  it had temporarily assigned three staff to the program while implementing  plans to recruit and hire additional permanent staff. USAID also concurred  with our recommendation to periodically assess the Cuba Program’s  overall efforts to address and reduce grantee risk. The agency said that the  Bureau for Latin America and the Caribbean would take specific steps to  assess the risks associated with the Cuba Program’s grantee pool in its  ongoing risk assessment work. USAID noted that the bureau’s assessment  would incorporate results from grantee monitoring and site visits, reviews  by the financial services contractor hired in April 2008, preaward reviews,  and results from audits by the agency’s Inspector General.
We are sending copies of this report to the USAID Administrator,  appropriate congressional committees, and other interested parties. The  report also is available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-3149 or gootnickd@gao.gov. Contact points for our offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To review the actions that U.S. Agency for International Development  (USAID) has taken since 2006 to improve its award and oversight of the  Cuba Program’s grants as well as actions taken in response to the recently  detected misuses of program grant funds, we analyzed USAID and  Department of State (State) records, including agendas and minutes for  meetings of USAID’s Cuba project committee, draft and final changes to  agency policy and guidance, and audit and financial reports of grantee  activities. We reviewed and analyzed USAID budget, staffing, and  procurement records. With regard to staffing, for example, we analyzed  agency staffing assessments and related records; with regard to USAID  Cuba Program awards and modifications, we analyzed agency grant  documents and related records. We verified our analysis of these records  with agency officials. In June 2008, we observed two quarterly grantee  monitoring visits and one orientation visit to a grantee with a new award  conducted by Cuba Program office staff. In addition, we conducted limited  follow-up reviews of financial and other records at 5 of the 10 grantees  that we had analyzed in our November 2006 report. In conducting these  follow-up reviews, we employed the same methodology that we had used  for our 2006 report. We also reviewed audit reports issued by the State  and USAID Inspectors General in July and September 2007, respectively.  We interviewed agency officials, including the current and former Cuba  Program Directors, contracting officials, and auditors, about the actions  taken in response to our report and actions taken in response to reported  misuse of grant funds at two grantees. Additionally, we interviewed  officials from the DMP Group, to which USAID awarded a contract in April  2008 to conduct a range of financial reviews of its Cuba Program grantees,  and we reviewed DMP’s work papers and draft and final reports. We did  not examine USAID’s selection of this firm or the reasonableness of the  contractor’s fees.
We conducted this performance audit from May through July 2007 and  from May through November 2008, in accordance with generally accepted  government auditing standards. Those standards require that we plan and  perform the audit to obtain sufficient, appropriate evidence to provide a  reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
section_title: Appendix II: Status of USAID’s Proposed and Reported Actions to Improve Awards and Oversight for Cuba Democracy Assistance
paragraphs: Table 2 summarizes our November 2006 findings and recommendations  regarding USAID’s awards and oversight of democracy assistance for Cuba  as well as USAID’s proposed or reported corrective actions, as of  September 2008, and our assessment of the status of these actions.
section_title: Appendix III: Comments from the U.S. Agency for International Development
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Jeanette M. Franzel, Director,  Financial Management and Assurance; Emil Friberg, Jr.; Michael  Rohrback; Bonnie Derby; Todd M. Anderson; Sunny Chang; Lisa M.  Galvan-Treviño; and Reid Lowe made key contributions to this report.