Foreign Assistance: Measures to Prevent Inadvertent Payments to Terrorists under Palestinian Aid Programs Have Been Strengthened, but Some Weaknesses Remain
Published: 2009-05-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. government is one of the largest donors to Palestinians. It provided nearly $575 million in assistance in fiscal year 2008. This assistance is provided through the U.S. Agency for International Development (USAID) and through contributions to international organizations, primarily the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). The Department of State (State) oversees U.S. contributions to UNRWA. To help ensure that U.S. funds for these programs are not provided to individuals or entities engaged in terrorist activities, USAID and State must comply with restrictions under U.S. law. GAO was asked to (1) assess the extent to which USAID has complied with its antiterrorism policies and procedures and (2) assess State's and UNRWA's policies and procedures to support conformance with U.S. statutory conditions. GAO reviewed U.S. and UNRWA documents; interviewed USAID, State, and UNRWA officials; and conducted fieldwork in Israel, Jerusalem, and Jordan.
section_title: What GAO Found
paragraphs: USAID strengthened its antiterrorism policies and procedures and complied with them in making new prime awards, but had weaknesses related to compliance at the subaward level. ("Prime awardee" refers to an organization that directly receives USAID funding to implement projects. "Subawardee" refers to an organization that receives funding from prime awardees.) USAID strengthened its policies and procedures in response to our 2006 recommendations by, for example, strengthening its vetting process, which involves investigating a person or entity for links to terrorism. Since 2006, USAID has instituted new procedures to monitor prime awardee compliance with antiterrorism requirements, which have allowed it to take some actions to address areas of concern. The agency has hired a specialist who reviews prime awardees' subaward files for compliance with its antiterrorism policies. All 32 new prime awards made by USAID in fiscal year 2008 included all applicable clauses. USAID obtained the applicable antiterrorism certifications and conducted required vetting for all applicable new prime awards. For a random sample of fiscal year 2008 subawards, applicable antiterrorism certifications were obtained and vetting was conducted. However, an estimated 17 percent of subawards had insufficient evidence to assess compliance related to mandatory clauses. For the remaining subawards, an estimated 5 percent did not contain the mandatory clauses at the time of the award. GAO also found limitations in the agency's monitoring of subawards for inclusion of mandatory clauses. Since 2003, State and UNRWA have strengthened policies and procedures to conform with conditions on U.S. contributions to UNRWA, but weaknesses remain. Section 301(c) of the Foreign Assistance Act of 1961, as amended, prohibits U.S. contributions to UNRWA except on the condition that UNRWA take all possible measures to assure that no part of the U.S. contribution shall be used to furnish assistance to, among others, any refugee who has engaged in any act of terrorism. UNRWA has agreed to conform to conditions on U.S. contributions, but State has not established criteria to determine whether UNRWA's actions are consistent with this agreement. While State has not defined the key term "all possible measures" or defined nonconformance, it has strengthened some policies and procedures to oversee UNRWA's conformance. UNRWA has strengthened policies and procedures to promote neutrality of its beneficiaries, staff, contractors, and facilities that cover a broader range of conduct than covered in section 301(c). UNRWA reported denying approximately 110 applications for cash assistance to refugees since July 2006, because the agency found the refugees' behavior was inconsistent with UN neutrality or restrictions related to section 301(c). However, limitations exist. UNRWA said it has screened all staff, contractor, and beneficiary names against a UN Security Council list of potential terrorists and found no matches. However, the list does not include Hamas and Hezbollah, which the United States has designated as foreign terrorist organizations. Finally, internal UNRWA audits do not assess controls for all cash assistance programs or whether contracts contain antiterrorism clauses.

section_title: Letter
paragraphs: For decades, the United States has played a leading role in efforts to  resolve the Israeli-Palestinian conflict. Since 1948, Palestinians in the West  Bank, Gaza, and neighboring countries have received education, economic  revitalization, health services, and infrastructure assistance. The U.S.  government is one of the largest donors to Palestinians. It provided nearly  $575 million in assistance in fiscal year 2008. This assistance is mainly  provided bilaterally, through the U.S. Agency for International  Development (USAID), and multilaterally, through contributions to  international organizations, primarily the United Nations Relief and Works  Agency for Palestine Refugees in the Near East (UNRWA). The  Department of State (State) oversees U.S. contributions to UNRWA. The  bilateral and multilateral aid programs differ substantially in their methods  of providing assistance. For example, while USAID relies heavily on  contractors to implement projects that improve the welfare of  Palestinians, such as building water distribution networks, UNRWA hires  nearly 30,000 employees to directly provide social and humanitarian  services, such as education and health care. To help ensure that U.S. funds  for these programs are not provided to individuals or entities engaged in  terrorist activities, USAID and State must comply with restrictions under  U.S. law when providing funds for Palestinian assistance programs.
The Consolidated Appropriations Act of 2008 directs the Comptroller  General to conduct an audit and an investigation of the treatment,  handling, and uses of all funds for the bilateral West Bank and Gaza  Program in fiscal year 2008 under the Economic Support Fund, including  an assessment of the extent to which this program has complied with the  requirements attached to these funds in this legislation. In addition,  House Report 110-197 directs GAO to assess UNRWA’s complianc e with  conditions required by law on U.S. contributions to UNRWA, particularly  UNRWA’s cash assistance program. In response to previous mandates, we  assessed UNRWA’s actions to implement section 301(c) of the Foreign  Assistance Act of 1961, as amended, in 2003 2006. We made no recommendations in our 2003 report. USAID  implemented four recommendations from our 2006 report, which were  intended to strengthen USAID efforts to help ensure that U.S. assistance to  the West Bank and Gaza does not support terrorist activities. For example,  as we recommended, USAID clarified how its antiterrorism policies and  procedures would be applied to certain types of assistance instruments.   and USAID’s compliance in  In response to the appropriations act and the House report, as well as a  request from the House Foreign Affairs Committee and its Subcommittee  on the Middle East and South Asia, we (1) assessed the extent to which  USAID has complied with its policies and procedures to help ensure that  its programs do not provide support to entities or individuals associated  with terrorism in the West Bank and Gaza, and (2) assessed State’s and  UNRWA’s policies and procedures to support conformance with U.S.  statutory conditions placed on contributions provided to UNRWA to  prohibit funding of terrorist-related activities.
See GAO, Department of State (State) and United Nations Relief and Works Agency  (UNRWA) Actions to Implement Section 301(c) of the Foreign Assistance Act of 1961,  GAO-04-276R (Washington, D.C.: Nov. 17, 2003). that USAID identified for us as made by prime awardees in fiscal year  2008. We assessed both prime awards and subawards against the  requirements stipulated by USAID to help ensure compliance with U.S.  legal requirements prohibiting support for terrorist-related activities. To  address the second objective, we analyzed key documents and data  provided by State and UNRWA; interviewed State officials in Jerusalem  and Washington, D.C.; interviewed UNRWA officials; and observed  UNRWA programs in Jordan and the West Bank.
We conducted this performance audit from August 2008 to May 2009 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. (App. I provides a detailed discussion of our  objectives, scope, and methodology.)
subsections: section_title: Background
paragraphs: The U.S. government has provided assistance to Palestinians both  bilaterally and multilaterally for several decades. USAID is the agency  primarily responsible for implementing the bilateral aid program, while  State oversees annual contributions to international organizations,  primarily to UNRWA, for the multilateral program. The focus, size, and  intent of the bilateral and multilateral programs differ. Table 1 compares  the main characteristics of the two programs. “Prior to the obligation of funds appropriated by this Act under the heading ‘Economic  Support Fund’ for assistance for the West Bank and Gaza, the Secretary of State shall take  all appropriate steps to ensure that such assistance is not provided to or through any  individual, private or government entity, or educational institution that the Secretary  knows or has reason to believe advocates, plans, sponsors, engages in, or has engaged in,  terrorist activity nor, with respect to private entities or educational institutions, those that  have as a principal officer of the entity’s governing board or governing board of trustees  any individual that has been determined to be involved in, or advocating terrorist activity or  determined to be a member of a designated foreign terrorist organization. The Secretary of  State shall, as appropriate, establish procedures specifying the steps to be taken in carrying  out this subsection and shall terminate assistance to any individual, entity, or educational  institution which she has determined to be involved in or advocating terrorist activity.” “None of the funds appropriated under title II through V of this Act for assistance under the  West Bank and Gaza program may be made available for the purpose of recognizing or  otherwise honoring individuals who commit, or have committed, acts of terrorism.”
The Secretary of State has deferred to USAID, the implementing agency, to  ensure compliance with these and similar provisions. The USAID Mission  to the West Bank and Gaza (the mission) developed Mission Order 21,  which outlines USAID’s procedures to help ensure that its assistance  program does not inadvertently provide support to entities or individuals  associated with terrorism, in accordance with U.S. law. Mission Order 21  establishes, among others, the following requirements:    All solicitations and awards for contracts, grants, and subagreements must  contain the antiterrorism clause. This clause reminds award recipients  that they must comply with U.S. executive orders and laws prohibiting  transactions with terrorists, and the provision of resources and support to  individuals or organizations associated with terrorism. UN agencies that  receive USAID funds must include a separate clause.
All U.S. and non-U.S. organizations must sign the antiterrorism  certification before being awarded a grant or cooperative agreement to  certify that the organization does not provide material support or  resources for terrorism. This certification recommends that the recipient  follow certain steps to comply with its obligation, including (1) screening  against the U.S. Department of Treasury’s Office of Foreign Assets Control  (OFAC) list and the UN Security Council’s Al-Qaida and Taliban Sanctions  Committee Consolidated List (UN 1267 list) before providing any  material support or resources to an individual or entity and (2)  implementing reasonable monitoring and oversight procedures to  safeguard against assistance being diverted to support terrorist activity.
All contracts, subcontracts, grants, cooperative agreements, and subgrants  must contain the clause restricting facility names, known as the naming  clause. This clause states, among other things, that no assistance shall be  provided under this contract or agreement for any school, community  center or other facility that is named after any person or group that has  advocated, sponsored, or committed acts of terrorism.
Certain individuals and organizations need to be vetted, which involves  checking recipients’ names and other identifying information against  databases and other information sources to determine if they have links to  terrorism. “No contributions by the United States shall be made to the United Nations Relief and  Works Agency for Palestinian Refugees in the Near East except on the condition that the  United Nations Relief and Works Agency takes all possible measures to assure that no part  of the United States contribution shall be used to furnish assistance to any refugee who is  receiving military training as a member of the so-called Palestinian Liberation Army or any  other guerrilla type organization or who has engaged in any act of terrorism.”
This clause is commonly referred to as “section 301(c).”
State is responsible for implementing section 301(c) and, in that capacity,  oversees U.S. contributions to UNRWA. UNRWA beneficiaries include  Palestinian refugees and a limited number of individuals displaced by the  1967 Arab-Israel conflict.  According to UNRWA, most of the displaced  individuals are in Jordan.
section_title: USAID Strengthened Its Antiterrorism Policies and Procedures and Complied with Them in Making New Prime Awards, but Has Weaknesses in Compliance at the Subaward Level
paragraphs: Since 2006, USAID has strengthened its antiterrorism policies and  procedures to help ensure that assistance is not inadvertently provided to  terrorists. USAID complied with its strengthened policies and procedures  when issuing new prime awards in fiscal year 2008. Although USAID’s new  monthly reporting system was intended, in part, to improve compliance at  the subaward level, we found that it did not provide sufficient information  for us to assess compliance.
subsections: section_title: USAID Strengthened Its Antiterrorism Policies and Procedures
subsections: section_title: USAID Strengthened Its Antiterrorism Policies and Procedures by Clarifying How They Apply to Each Assistance Agreement
paragraphs: In response to our 2006 recommendation, USAID strengthened its  antiterrorism policies and procedures—as outlined in Mission Order 21—  to help ensure that assistance is not inadvertently provided to terrorists by  clarifying how those policies and procedures would be applied to each  type of assistance instrument. Although USAID had established  antiterrorism provisions that apply to contracts, cooperative agreements,  and grants, we reported in 2006 that it had not clearly articulated how  antiterrorism provisions apply to other types of assistance instruments,  such as purchase orders. We recommended that USAID develop policies  and procedures to address how each of its antiterrorism provisions apply  to other types of assistance instruments. In its October 3, 2007, revision to  Mission Order 21, USAID strengthened its antiterrorism policies and  procedures by listing which clauses and certifications would apply to each  type of assistance instrument—thereby responding to our 2006  recommendation. For example, the antiterrorism certification now clearly  applies to grants made under contracts. In addition, USAID clarified that  instruments that can function as contracts, such as purchase orders, are  subject to the same policies as contracts.
section_title: USAID Strengthened Its Vetting Process
paragraphs: USAID strengthened its vetting process in response to a 2006 GAO  recommendation that the mission’s vetting management database promote  data reliability, satisfy technical documentation requirements, and meet all  applicable security requirements. This recommendation was based on our  finding that the mission did not routinely collect or verify detailed  identifying information—such as date and place of birth—needed to fully  vet individuals. We also identified weaknesses in the mission’s unclassified  database, which was designed to record and track vetting results. For  example, few safeguards were in place to control access to the  information stored in the database. In response to our recommendation  and findings, the following were completed:  In December 2006, USAID instituted a new strengthened vetting system,  called the Partner Vetting System. This system uses U.S. law enforcement  and intelligence databases to vet the names of individuals that it receives  from the mission. It also requires additional information for individuals  being screened, such as the individual’s government-issued photo  identification number and type (e.g., passport and passport number).  Access to the system is limited to certain individuals who may have  different levels of access to information in the system. For example, the  clerks who enter vetting information do not have the same level of access  as the contracting officer who makes the award.
USAID placed a U.S. citizen with a security clearance in charge of the  office responsible for maintaining the vetting system, thereby enabling  sensitive derogatory information on potential awardees to be shared with  the mission. Derogatory information indicates that vetted organizations or  individuals appear to have links with terrorism.
USAID conducted additional vetting at the U.S. consulate in Jerusalem for  organizations receiving cash or in-kind assistance, which serves as another  review to help ensure that funds are not inadvertently given to terrorists.
According to USAID officials and prime awardees we spoke with, these  improvements have strengthened controls over the system and decreased  vetting time from about 9 months to as little as 1 to 2 weeks.
section_title: USAID Enhanced Monitoring Efforts to Provide More Timely Information on Compliance
paragraphs: In 2008, USAID enhanced its efforts to monitor prime awardee compliance  with applicable Mission Order 21 requirements by commissioning an  additional compliance audit, hiring a compliance specialist to conduct  recurring compliance reviews, and requiring that prime awardees address  noncompliance findings. USAID commissioned an additional compliance  audit by contracting with an independent auditing firm to review 15 prime  awardees’ compliance with Mission Order 21 during the period from June  1, 2006, through January 31, 2008. The audits examined 1,094 subawards  and found 70 total weaknesses; 62 awards contained at least 1 weakness  and 5 of those awards contained multiple weaknesses. Thirty-eight of the  70 weaknesses were related to mandatory clauses, 13 were related to  vetting approval, and 4 were related to vetting procedures. The audit also  found 15 monthly reporting weaknesses. According to USAID officials,  where appropriate, prime awardees took actions to address the identified  weaknesses. They also said that, in response to these findings, mandatory  clauses were inserted into subawards when necessary, and required  vetting was conducted and each subawardee passed vetting. This one-time  audit provided additional feedback to USAID on the 15 prime awardees’  compliance beyond the existing feedback provided through the annual  Regional Inspector General audits.
Building on the one-time additional compliance audit, USAID further  enhanced its oversight of prime awardees’ efforts to comply with their  Mission Order 21-related requirements by hiring, in 2008, a compliance  specialist. This specialist is responsible for conducting recurring  compliance reviews of prime awardees’ subaward activities. Previously,  USAID only examined prime awardee compliance with these requirements  as part of periodic contract and compliance audits conducted under the  direction of the Regional Inspector General. According to USAID officials,  the compliance specialist’s reviews allow USAID to monitor compliance  on a more timely basis than can be done with the annual USAID Regional  Inspector General audits. In July 2008 the compliance specialist began  conducting periodic site visits to prime awardee locations to review  records related to the subawards made under USAID contracts and  assistance agreements to determine whether they complied with Mission  Order 21. According to the mission, the compliance specialist’s review  includes inspecting documents related to each subaward contract or  agreement to confirm that (1) the prime awardee had received evidence  from USAID that required preaward vetting had occurred and the  subawardee was eligible; (2) each subaward contract or agreement had  related mandatory clauses; and (3) where applicable, the prime awardee  had obtained from subawardees a signed and dated antiterrorism  certification prior to making the subaward. In addition, the mission stated  that, whenever possible, the compliance specialist reviews the prime  awardees’ records of subaward activity to determine whether all required  subawards were included in the monthly subaward reports. The  compliance specialist uses a standardized checklist to determine whether  an award is compliant with Mission Order 21.
The compliance specialist found problems with some prime awardees’  compliance with Mission Order 21 and their monthly reports, most of  which, according to the mission, have been resolved. In his first draft  summary report, the compliance specialist reviewed 2,883 subawards  issued by 32 prime awardees for compliance with Mission Order 21. The  specialist discovered 26 instances where the subaward did not include the  naming clause, 13 where the subaward did not include the antiterrorism  clause, and 2 where the antiterrorism certification was not signed prior to  the award being made. The compliance specialist also found 5 instances of  noncompliance with Mission Order 21’s vetting policies. In one of those  instances, for example, USAID disallowed the costs submitted by the  prime awardee because the prime awardee issued the subaward without  obtaining vetting approval. The mission said the subawardees were  subsequently vetted and cleared in the remaining four cases. According to  the mission, awardees have since resolved most instances of  noncompliance found by the reviewer. The remaining instances were not  corrected because the award had already expired or had been cancelled by  the prime awardee. Additionally, the compliance specialist found 66  instances where prime awardees had not correctly reported their  subawards in their monthly reports to USAID.
section_title: USAID Complied with Its Strengthened Antiterrorism Policies and Procedures at the Prime Award Level
subsections: section_title: USAID Included All Applicable Clauses in All New Prime Awards Made in Fiscal Year 2008 and Obtained Required Certifications
paragraphs: All prime awardee and subawardee non-   U.S. organizations or individuals (16 years  old or older) proposed to receive cash or      in-kind assistance under a cooperative  agreement, grant, or subgrant.
We found that all 32 new prime awards made by USAID in fiscal year 2008  contained the appropriate mandatory clauses—the antiterrorism and  naming clauses—and, where applicable, USAID had obtained the  advanced antiterrorism certifications, as required under Mission Order  21. The antiterrorism clause reminds award recipients that they must  comply with U.S. executive orders and laws prohibiting transactions with  terrorists and the provision of resources and support to individuals or  organizations associated with terrorism. The naming clause states that no  assistance shall be provided under this contract or agreement for any  school, community center, or other facility that is named after any person  or group that has advocated, sponsored, or committed acts of terrorism.  USAID officials said there are relatively few situations where the United  States is providing assistance to the West Bank and Gaza that involves  naming buildings or structures. The antiterrorism certification requires  that all U.S. and non-U.S. organizations must certify, before being awarded  a grant or cooperative agreement, that the organization does not provide  material support or resources for terrorism.
All non-U.S. individuals (16 years old or      older) who receive USAID-financed training,  United States or third countries or whostudy tours or invitational travel in the receive training in the West Bank/Gazalasting more than 5 consecutive work days.
All entities or specifically identified persons (16 years old or older) who directly receiveother forms of cash or in-kind assistance,   with the following exceptions (thesethresholds apply to a single award and are not cumulative):   organizations that receive assistance of  $2,500 or less,   households that receive micro-  enterprise loans or assistance of $5,000 Even if vetting would not otherwise be required under these rules, vetting will be conducted whenever there is reason to believe that the beneficiary of assistance or the vendor of goods or services commits, attempts to commit, advocates, facilitates, or participates in terrorist acts, or has done so in the past.
USAID vetted the appropriate officials for all four new prime awards made  in fiscal year 2008 that required vetting according to Mission Order 21. In  addition, USAID officials said they vetted, in fiscal year 2008, 1,239  individuals in compliance with Mission Order 21 before they received  USAID assistance for scholarships, microenterprise loans, and direct cash  assistance.
In establishing requirements for whom to vet, a USAID official said the  mission has weighed the costs of vetting, the risks of not vetting, and the  need to meet its foreign assistance goals. According to this official, the  mission does not vet U.S. organizations or citizens who receive assistance  due to U.S. privacy law concerns. In addition, U.S. organizations and  citizens are subject to U.S. criminal statutes. This USAID official said that  they set certain criteria and dollar thresholds that govern whether or not  vetting is required. For example, USAID only conducts vetting at the prime  and subaward levels and only vets key individuals associated with the  applicable non-U.S. organization. As a result, employees of non-U.S.  organizations who are not key individuals are not vetted. USAID also does  not vet non-U.S. organizations and individuals that receive contracts  unless the cumulative value of the contracts received in a 12-month period  exceeds $25,000. (See app. II for additional information on the vetting  process.)
section_title: USAID’s New Monthly Subaward Reporting System Did Not Provide Sufficient Information for Us to Assess Compliance
subsections: section_title: USAID Instituted a New Monthly Subaward Reporting System
paragraphs: USAID instituted a new monthly reporting system in response to a prior  GAO recommendation. In 2006, GAO recommended that USAID develop a  review and reporting system to help ensure prime awardees comply with  the requirements related to subaward vetting, certifications, and  mandatory clauses. In response, USAID instituted, as part of its plan to  assess compliance, a monthly reporting requirement under which prime  awardees (1) submit information on new subawards they have made  (including the subawardee name and subaward type and value) and copies  of required mandatory clauses and antiterrorism certifications, and (2)  indicate whether the required subaward vetting took place prior to the  award. The prime awardees are to send the mission a spreadsheet listing  the required information for each subaward, as well as copies of the  related supporting documentation. The USAID clerk who receives the  information inputs the amount of each program-related subaward into the  Partner Vetting System (PVS).  This allows the mission to track the  cumulative amount of contracts awarded to any single awardee to ensure  that vetting occurs when required.
section_title: Subawards Met Vetting Requirements and Subawardees Provided Required Antiterrorism Certifications
paragraphs: For each of the 51 subawards from our random sample of 95 subawards  made to non-U.S. organizations and individuals that required preaward  vetting, the PVS showed that USAID vetted and approved each  subawardee prior to the date of the subaward. In addition, for each of the  35 subawards below the $25,000 threshold the PVS included the  subawardee’s name and the amount of the subaward. This information  supports the Mission Order 21 requirement to vet a subawardee when the  cumulative amount given to that subawardee exceeds $25,000. We also  found that prime awardees obtained the signed antiterrorism certification  for all six subawards that required this certification. As required, each  certification was dated prior to the subaward date.
section_title: Insufficient Evidence to Assess Subaward Compliance with Requirements Related to Mandatory Clauses
paragraphs: Based on our random stratified sample, we estimate that 17 percent, plus or  minus 7 percentage points, of all fiscal year 2008 subawards identified by  USAID did not contain sufficient evidence to determine whether the  mandatory clauses were included in the subaward at the time the subaward  was made.  In conducting our review, we found that the reported  information, including the subaward information and related documentation  reported monthly to USAID by prime awardees, did not include sufficient  evidence to enable us to reasonably conclude whether or not the prime  awardee had met the requirement to include the mandatory clauses in the  subaward at the time the subaward was made.
The monthly reported information was often insufficient because prime  awardees are only required by USAID to provide copies of the mandatory  clauses and are not required to include within the mandatory clauses specific  references to the subaward, such as the subaward number and date, or to  have the subawardee sign and date the clauses. In many instances, the copies  of the mandatory clauses provided by prime awardees did not contain  information identifying the applicable subaward or otherwise clearly show  that the clauses were included in the subawards at the time they were made.  Therefore, we asked USAID to provide us with copies of the complete  subaward documents for each of our 144 randomly selected subawards.  However, even with the copies of actual subaward documents provided by  USAID, we could not determine whether the mandatory clauses were  included at the time the subaward was made for many of the subawards in  our sample.
We based our estimate that approximately 17 percent of all fiscal year 2008  subawards USAID had identified did not contain sufficient evidence to  assess compliance on 40 subawards from our random sample. All 40  involved purchase orders issued by 1 prime awardee. For each of the 40  subawards, we found that the information USAID provided was not  sufficient to assess compliance because the purchase order documents did  not contain the mandatory clauses or include a specific reference to them  even though the October 2007 revisions to Mission Order 21 required that the  mandatory clauses be included in each contract or grant agreement, including  purchase orders. The information provided by USAID consisted of a  discrete purchase order and separate additional pages containing the  mandatory clauses. However, the only references to the purchase orders  that were included on the copies of the mandatory clauses were individual  handwritten annotations. It was not clear who made the annotations and  when they were made.  USAID officials said they believe the subaward  information they provided was sufficient to determine compliance  because the prime awardee provided USAID with copies of the separate  purchase order and mandatory clauses attached together.  However, we  found several instances in which copies of the same mandatory clauses  were provided to us as support for different purchase orders in our  subaward sample even though these clauses were signed and dated with   dates that were not consistent with the dates of the individual  subawards.  As a result, we could not reasonably conclude whether or  not the prime awardee complied with the requirement to include the  mandatory clauses as part of the 40 subawards at the time they weremade.  To clearly establish at the time of the subaward that subawarde agreed to the mandatory clauses when the mandatory clauses are not  included within a subaward   each applicable contract (including purchase orders) or agreement should  include a direct and specific reference to the existence and applicability of  the separate mandatory clauses, and    each set of related but separate mandatory clauses should include within  the clauses specific and direct reference to the contract (including  purchase orders) or agreement.
section_title: Some Prime Awardees Did Not Comply with Mandatory Clause Requirements when They Made Subawards
paragraphs: Based on our random stratified sample, we estimate that about 83 percent,   plus or minus 7 percentage points, of all fiscal year 2008 USAID-identified  subawards contain sufficient evidence to assess compliance. There were  104 subawards in our random sample for which we obtained sufficient  documentation to determine whether the prime awardees complied with  requirements related to mandatory clauses. We concluded, based on this  documentation, that some prime awardees did not always comply with  requirements by including mandatory clauses in subaward files at the time  they made the subaward. We estimate that for 95 percent, plus or minus 4  percentage points, of those subawards with sufficient information to  assess compliance, prime awardees included the mandatory clauses at the  time the subaward was made, and, thus were in compliance with Mission  Order 21.  However, based on the evidence provided to us, we estimate  that for 5 percent, plus or minus 4 percentage points, of subawards with  sufficient information to assess compliance, the prime awardee did not  include the mandatory clauses at the time the subawards were made.
For 14 of the 104 sampled subawards with sufficient information, the  evidence provided by USAID established that the prime awardee did not  include the required mandatory clauses in each applicable subaward at the  time the subaward was made. For 2 of the 14 subawards, the prime  awardees later modified the subaward to incorporate the mandatory  clauses. For another 8 of the 14 subawards, the prime awardee  subsequently obtained the subawardee’s acknowledgement that the  mandatory clauses were applicable to the subaward by having the  subawardee sign and date the mandatory clauses. For 3 other subawards,  while the prime awardee made some efforts to incorporate the required  mandatory clauses, the required clauses were not included in each  applicable subaward prior to the completion of work. For the remaining  subaward, the subaward was already completed when the prime awardee  noted that the subaward did not include the required mandatory clauses.
section_title: State and UNRWA Have Strengthened Policies and Procedures to Determine Whether UNRWA’s Actions Are Consistent with Its Agreement to Conform with Conditions for Receiving U.S. Funds, but Weaknesses Remain
paragraphs: UNRWA has agreed with State to take steps to conform with the condition  on U.S. contributions set forth in section 301(c) of the Foreign Assistance  Act of 1961, as amended, and report to State on its efforts semiannually.  However, State has not established criteria to determine whether UNRWA  is in conformance with conditions on U.S. funds, though it has  strengthened some oversight procedures. UNRWA has strengthened  policies and procedures intended to conform with the conditions on U.S.  contributions, but we found some weaknesses in UNRWA’s efforts, such  as screening only against a UN terrorist list, in accordance with UN policy,  and in internal audits of UNRWA operations.
subsections: section_title: UNRWA Has Agreed to Conform with Conditions on U.S. Contributions through Agreements with State
paragraphs: Since late 2006, UNRWA and State have signed 3 annual Frameworks for  Cooperation and more than 10 letters confirming UNRWA’s commitment  to conform with the condition on U.S. contributions provided in section  301(c) prior to receiving U.S. funds. In accepting U.S. government funding,  UNRWA certifies that it is taking all possible measures to ensure that no  part of the United States contribution is being used to furnish assistance  to, among others, any refugee who has engaged in any act of terrorism.  Under the Framework for Cooperation, which is renewed annually and  signed by both State and UNRWA, UNRWA commits to, among other  things, (1) conform with the condition in section 301(c) and (2) report  every 6 months on actions it has taken to ensure conformance with the  condition in section 301(c). UNRWA agrees to similar terms and  conditions in U.S. contribution letters before receiving U.S. funds. Since  October 2006, UNRWA has submitted five semiannual reports to State,  which describe the agency’s actions to enforce rules and regulations on  staff and beneficiary behavior; monitor UNRWA facilities in the West Bank  and Gaza; and screen names of individuals and entities who receive  UNRWA funding against a UN terrorist list.
According to UNRWA officials, the policies and procedures UNRWA  established to implement the UN principles of neutrality and impartiality  and the goals of the International Convention for the Suppression of the  Financing of Terrorism support UNRWA’s conformance with U.S.  conditions. State officials also told us they agreed that UNRWA’s efforts to  ensure neutrality are consistent with and support UNRWA’s efforts to  meet the condition for receiving U.S. contributions under section 301(c).  Under the UN principles of neutrality and impartiality, UNRWA staff and  other personnel should neither seek nor accept instructions from any  government or other authority external to UNRWA. This ensures that staff  and other personnel are not involved in conduct that is inconsistent with  the independence and impartiality required by their status as international  civil servants or service providers to the UN. UNRWA officials said UN  neutrality is compatible with section 301(c) funding conditions. According  to UNRWA, a staff member’s involvement in a militant group or terrorist  activities would be clearly contrary to UNRWA’s staff regulations and rules  and would certainly result in termination. In requiring that staff, third  parties, and facilities be neutral, UNRWA proscribes a range of conduct  broader than the conduct described in section 301(c). According to  UNRWA rules, staff member involvement in activities such as running for  political office in an election or making public political statements would  result in disciplinary action, including termination. Although UNRWA does  not require beneficiaries to be politically neutral to receive assistance, the  agency promotes neutrality within the refugee camps and refuses  assistance to refugees involved in inappropriate behavior, including  section 301(c)-related activities. UNRWA defines terrorism according to  the 1999 International Convention for the Suppression of Financing of  Terrorism.
section_title: State Has Not Established Criteria to Determine UNRWA’s Conformance with Conditions on U.S. Funds but Has Strengthened Some Oversight Procedures
subsections: section_title: State Has Not Established Criteria to Determine UNRWA’s Conformance with Conditions on U.S. Funds
paragraphs: State reported that it has contributed nearly $340 million to UNRWA in the  last 2 fiscal years, but State has not established written criteria to  determine whether UNRWA’s efforts are consistent with the section 301(c)  conditions that UNRWA has agreed to for receiving U.S. funds. Aside from  the assessments by State of whether to continue funding UNRWA, State  officials said that they have not developed any written criteria to analyze  UNRWA’s semiannual reports and have not assessed UNRWA’s efforts  against such criteria to determine conformance. For example, State has  not defined what would constitute nonconformance or developed written  definitions of key terms, including “all possible measures”—a concern we  also raised in 2003—that would help serve as criteria for analyzing  UNRWA’s semiannual reports. In addition, we found that State did not  have several important UNRWA policy documents, which officials could  use to help form criteria for their evaluation of UNRWA’s conformance,  such as UNRWA instructions for providing relief and social services  (including cash assistance) to refugees and the agency’s assessment of  high-risk areas.
State officials said they consider UNRWA to be in conformance with its  commitment to adhere to section 301(c) based on State’s ongoing review  of UNRWA’s activities and reports through written communications and  discussions with UNRWA officials. State officials told us that, to be  consistent with section 301(c), they must affirm that State has an internal  level of confidence that UNRWA has taken all possible measures to ensure  that terrorists are not receiving assistance, such as having procedures in  place and taking measures to respond to issues that arise. State officials  said that they undertake immediate reviews of any information or  allegations of possible concern. State officials told us that their reviews  consist of an evaluation of information received from UNRWA and other  sources about the allegations or questions arising from a review of the  semiannual reports. State officials also note that they regularly follow up,  when necessary, on what investigations and disciplinary actions UNRWA  undertakes. For example, when an allegation arose that UNRWA had  employed a member of Islamic Jihad, State contacted UNRWA to  determine how UNRWA handled the allegation. According to State,  UNRWA reported that its investigation into the matter resulted in the  termination of the employee’s direct supervisors.
section_title: State Has Strengthened Some Policies and Procedures to Oversee UNRWA’s Conformance with U.S. Conditions
paragraphs: Despite the absence of a written evaluation by State of UNRWA’s  conformance with U.S. conditions, we found that State has strengthened  some policies and procedures to oversee UNRWA’s conformance with  conditions on U.S. funds. In 2003, we reported that State had not defined  “terrorism” for the purpose of implementing section 301(c), but State has  since concurred with UNRWA in its use of the definition of terrorism  contained in the International Convention for the Suppression of the  Financing of Terrorism. In addition, State reported that since we began  our review it has introduced several new policies and procedures to  improve oversight by enhancing communication with UNRWA on section  301(c). For example, State officials revised the job description of the  Regional Refugee Coordinator responsible for UNRWA to specifically  include additional roles and responsibilities for monitoring and reporting  on section 301(c) conformance. Also, since we began our review, State has  developed additional formal communication procedures to communicate  with UNRWA on section 301(c) issues. Specifically, State has introduced  the following procedures:    Monthly senior-level conversations between State’s Bureau of Population,  Refugees and Migration (PRM) and UNRWA on section 301(c) and other  priority issues. State told us that senior State officials began meeting with  UNRWA in October 2008 to specifically discuss section 301(c)-related  issues, including a recent meeting with the Director of UNRWA’s Gaza  field office.
Bimonthly meetings between the Regional Refugee Coordinator and the  U.S.-funded Operation Support Officers (OSO) for the West Bank and Gaza  who inspect UNRWA facilities, as well as other relevant officials, to  discuss section 301(c) issues.
Meetings between PRM Washington, D.C., staff and West Bank and Gaza  OSOs to discuss section 301(c) issues during monitoring visits to the  region. State officials reported that the Regional Refugee Coordinator and  senior State officials from headquarters have met with West Bank and  Gaza OSOs six times from November 2008 to April 2009.
An exchange of letters between State and UNRWA when incidents that are  potentially related to section 301(c) occur. State recently communicated  with UNRWA in a formal letter regarding issues in its most recent  semiannual compliance report.
In response to a suggestion we made during our review, State is currently  assessing the technical feasibility and resources involved in identifying  UNRWA contractors and funding recipients that may be on the U.S.  Department of Treasury’s Office of Foreign Assets Control (OFAC) list of  individuals and entities subject to U.S. sanctions, as well as consulting  internally in order to determine whether and how it would undertake such  an effort. We discussed with State the feasibility of screening the names of  UNRWA contractors and funding recipients against the OFAC list to  determine whether UNRWA funds are going to individuals and entities of  concern to the United States. As we noted earlier, USAID recommends  that all U.S. and non-U.S. organizations that sign the antiterrorism  certification consider following steps that include screening names against  the OFAC list before providing any material support or resources to an  individual or entity. UNRWA declined a past request by State to screen  names against the OFAC list on the grounds that doing so contradicts UN  policy. When we compared a list of about 15,000 contractors UNRWA  paid between 2002 and 2009 to the OFAC list, we found no perfect matches  but did find a few possible matches. One of these possible matches was a  telecommunications contractor UNRWA paid between 2002 and March  2009, which OFAC placed on its list in July 2008 for reasons related to  allegations of corruption. State officials said they would need to discuss  with UNRWA what the agency would do with any information regarding  such possible matches, given the UN’s practice of using a UN terrorist list  rather than lists provided by individual UN member governments. UNRWA  officials told us that if they are notified of potential matches, they would  use the information as a trigger to conduct their own investigation into the  matter in accordance with their existing procedures. According to  UNRWA officials, this is in keeping with UNRWA’s practice, which is to  take seriously and pursue any credible information it receives regarding  the possible violation of UN neutrality and impartiality principles.
section_title: UNRWA Has Strengthened Policies and Procedures Intended to Conform with U.S. Conditions on Contributions, but Limitations Exist
subsections: section_title: UNRWA Reported Denying Refugees Benefits, Including Cash Assistance, Due to Inappropriate Conduct
paragraphs: UNRWA reported denying approximately 110 applications for  discretionary cash assistance to refugees since July 2006 because agency  investigations found the refugees’ behavior was inconsistent with UN  neutrality or restrictions related to section 301(c). For example, UNRWA  reportedly refused burial, rehousing, and other cash assistance to refugees  following its investigations into the death of beneficiaries or their spouses  as a result of Israeli military incursions and operations, including targeted  killings, home demolitions, or workshop damage from shelling by Israeli  military authorities. According to UNRWA officials, such incidents are  triggers for an UNRWA investigation to determine whether individuals  were involved in inappropriate behavior and the potential denial of  benefits. In addition, UNRWA reported that it has denied cash assistance  for burial expenses to families of beneficiaries it found were killed by an  explosion while allegedly preparing an explosive device, as well as refused  cash assistance for post-surgery social care to an individual involved in  such an explosion. In more than 100 other cases, UNRWA reported that it  refused cash assistance to individuals whose homes were demolished or  for burial of family members killed in the Israeli operations. The agency  reported that it conducted field investigations following these Israeli  operations, but could not find clear evidence that the individuals  concerned had engaged in an act of terrorism or other inappropriate  behavior. However, the agency reported that it denied assistance in these  cases based on other reasons it identified in its investigations, including  failure to meet some eligibility criteria, competing priorities, or insufficient  resources.
UNRWA officials reported that it applies policies and procedures on  assistance to refugees that further the agency’s conformance with section  301(c) conditions. However, they also said that UNRWA provides  assistance in the context of its humanitarian mandate, meaning that  agency policy is generally not to deny education or primary healthcare  benefits. For example, UNRWA officials told us that the child of a refugee  who was denied benefits because of section 301(c)-related behavior would  not be disqualified from attending an UNRWA school. Similarly, the family  of such an individual would remain eligible for medical services at an  UNRWA health clinic. In some exceptional cases, officials stated that  UNRWA would not provide education benefits to a refugee. For example,  UNRWA told us the agency would deny vocational training benefits to a  young adult UNRWA found to be involved in inappropriate behavior.
section_title: UNRWA Reported Disciplining and Terminating Staff Due to Behavior Inconsistent with Agency Policies
paragraphs: UNRWA reported investigating more than 30 cases since October 2006  relating to staff activities that were political or otherwise inconsistent with  UN neutrality and taking disciplinary action, including termination, against  7 UNRWA staff as a result of these investigations. UNRWA also reported  that four terminated staff members filed appeals with the Joint Appeals  Board, of which UNRWA’s Commissioner-General dismissed two and two  remain ongoing. For example, in the last two years, UNRWA reportedly  terminated a staff member’s employment immediately upon his release  from Israeli detention for conspiring to kidnap an Israeli security officer.  UNRWA also reported that it terminated staff members for political  activity found to be inconsistent with the independence and impartiality  expected of UNRWA staff. UNRWA officials also indicated that they  denied benefits to the families of staff members who were found, through  investigations, to have been involved in inappropriate behavior. For  example, after the agency conducted an investigation into the matter,  UNRWA reportedly denied benefits, including pension benefits, to the  family of a staff member who was identified by Israeli authorities as a  militant and was killed by an Israeli military strike. UNRWA reported that  it also terminated two other staff members for management failures in this  case.
UNRWA has implemented several policies to promote staff behavior that  supports UN neutrality. For example, the UNRWA Organizational  Development plan introduced additional training to improve staff  knowledge on UN privileges and immunities and legal capacity in all field  offices. The agency also reported that it performs reference checks and  background security clearances for job applicants and has established  procedures to investigate inappropriate staff behavior. UNRWA also told  us that it seeks information from authorities whenever staff are detained,  convicted, or refused a permit or targeted by Israeli military forces.  UNRWA officials said they share the names of all UNRWA staff annually  with the governments of Egypt, Israel, Jordan, Lebanon, Syria, and the  Palestinian Authority but have received no information on staff members  from these governments. Additionally, once hired, UNRWA international  staff must apply for visas from the Governments of Egypt, Israel, Jordan,  Lebanon, and Syria to work in those areas. UNRWA officials told us that  these processes provide regional governments, notably in Egypt, Israel,  Jordan, Lebanon, and Syria, with additional opportunities to scrutinize the  profiles of UNRWA staff. Additionally, local staff in the West Bank and  Gaza must apply for permits from the Government of Israel for transit  between certain areas. For additional information on these policies and  procedures, see appendix III.
section_title: While UNRWA Reported Monitoring Facilities and Finding No Material Misuse, It Continues to Face Recurring Incursions into Facilities
paragraphs: Operation Support Officers (OSO) reported no instances in which agency  facilities were not being used as intended, but UNRWA continues to face  recurring incursions into its facilities. OSOs are to formally inspect each  UNRWA facility in the West Bank and Gaza every 3 to 4 months—and  informally inspect the facilities during camp visits as often as possible—to  ensure that UNRWA facilities are used only to provide UNRWA aid and  services, follow up on the condition of the facilities, and report on and  immediately address any issues that are identified. OSOs are also  responsible for removing political posters and communicating the  importance of UNRWA’s neutrality to the community during camp visits.  Since July 2006 UNRWA has reported more than 150 incursions into, and  other violations of the immunity of, UNRWA facilities by armed Israeli  military or police forces, Palestinian security forces, Palestinian militants  or individual Palestinians. For example, Israeli forces reportedly used  UNRWA school and health facilities as shooting positions or for  interrogations, and Palestinian Authority security forces have also  reportedly entered UNRWA facilities. In addition, UNRWA reported that  armed Palestinian militants have forcibly entered or fired weapons at,  near, or from UNRWA schools. Individual Palestinian beneficiaries who  were angered by a reduction in UNRWA programming have also taken  action against UNRWA facilities. UNRWA regularly protests these types of  incursions as violations of its privileges and immunities under  international law, and has asked the Palestinian Authority for increased  police protection in cases involving Palestinian militants.
UNRWA has introduced formal OSO inspection goals for the Gaza area of  three inspections per installation per year, which were absent in prior  years, but UNRWA officials reported that the security situation and  problems accessing the areas has increased the difficulty of meeting these  goals. UNRWA reported that OSOs conducted nearly 1,100 formal  inspections of its facilities in the West Bank and Gaza in 2008, meeting  approximately 95 percent of its goal. In the West Bank, OSOs formally  inspected each facility approximately 3.6 times (916 total inspections) in  2008, narrowly missing a goal of 4 inspections per installation (1024 total  inspections). In Gaza, OSOs conducted 172 formal inspections in 2008.
However, this represents less than one inspection per installation in the  Gaza area.
UNRWA currently does not have an OSO program in Jordan, Lebanon, or  Syria, but according to UNRWA officials, the agency hopes to receive  funding that will enable it to expand the OSO program to Lebanon. In May,  UNRWA selected a new protection officer funded by the European  Commission to integrate the refugees' protection into UNRWA operations  in Lebanon, including monitoring and reporting to senior staff on  protection-related issues. State has reported that it approved funding in  April 2009 for an expansion of the OSO program to Lebanon. We found  that facility inspections under the OSO program may address conditions  that could undermine UNRWA’s neutrality. For example, during our visit  to an UNRWA school in Jordan, where UNRWA does not currently operate  an OSO program, we saw political graffiti on an exterior wall and posters  created by teachers to support the school’s human rights curriculum that  had some violent content. Since our visit, UNRWA officials reported that  the Jordan field office has called upon senior field officials to inspect  facilities and that West Bank OSOs have shared practices with these  officials to improve their ability to perform functions similar to the OSOs.
section_title: UNRWA Reported Expanding Screening with a UN Security Council List and Finding No Matches, but the Screening Process Has Limitations
paragraphs: UNRWA told us that it has expanded its use of a UN Security Council  terrorist list to now screen all recipients of agency funds and that none of  its staff, contractors, beneficiaries, or microfinance clients have appeared  on the list, but we found some limitations in the agency’s screening  process. UNRWA screens its staff and contractors every 6 months against  the UN 1267 list. In addition, for the first time, UNRWA screened all 4.6  million Palestinian refugees and microfinance clients against this list in  December 2008. UNRWA officials told us that in addition to its screening  and investigations of individual applicants prior to providing assistance,  the agency intends to make such UN 1267 screening of all registered  refugees and microfinance clients a routine procedure. The agency also  enhanced transparency by introducing, in February 2009, a policy to  disclose on its Web site details of UNRWA contracts valued over $100,000,  which includes contractor names it screens against the UN 1267 list.  However, the list is limited to those individuals or entities affiliated with  Al-Qaida and the Taliban and thus does not specifically include major  regional groups, such as Hamas and Hezbollah, which the United States  has designated as foreign terrorist organizations. According to UNRWA,  the UN Security Council has various working groups for terrorism-related  issues, but the Sanctions Committee’s UN 1267 list is currently the only  such UN terrorist screening list available. In addition, UNRWA does not  conduct pre-employment screening of staff. UNRWA stated that screening  every 6 months ensures that staff are screened during employment  probationary periods. Furthermore, UNRWA told us it is unable to screen  all persons displaced by the 1967 conflict who are receiving health and  education benefits because the agency does not register or collect  information on such displaced persons in the region.
section_title: Internal Audits of UNRWA Do Not Assess Antiterrorism Controls or the Overall Cash Assistance Program
paragraphs: UNRWA internal audits of its operations do not explicitly assess  antiterrorism controls or controls for UNRWA’s overall cash assistance  program. UNRWA reported recent efforts to expand the capacity of its  Department of Internal Oversight Services, which evaluates the agency’s  financial accounts, assesses the risk of fraud, and reviews the adequacy  and effectiveness of internal controls systems, by hiring additional audit  staff. However, UNRWA officials reported that the department has not  audited signed agency contracts to determine if staff physically attach the  General Conditions of Contract, which include an antiterrorism clause and  which must be in every contract between UNRWA and a contractor.  UNRWA told us that the legal department ensures that all contracts  contain these clauses. The Department of Internal Oversight Services also  reported on an agency-wide risk management effort to identify high-risk  areas in 2008 and has planned audits related to UNRWA’s internal justice  system and emergency assistance activities in the West Bank and Gaza  funded by the agency’s Emergency Appeal request to donors. However,  audits related to several high-risk areas identified in the risk management  exercise, such as the Special Hardship Assistance Program in Gaza and  Syria, camp reconstruction activities in Lebanon and oversight in Gaza  are contingent on the availability of resources. In addition, since 2007, this  department has conducted five reviews related to UNRWA staff screening  processes and fraud prevention and detection, but none focused on  UNRWA’s cash assistance program activities funded through the General  Fund or Emergency Appeal, such as cash subsidies for food or selective or  emergency cash assistance. UNRWA reported, however, that  approximately 10 percent of the department’s work involves a review of a  food aid and cash assistance program. The European Commission funds  both the assistance program and its review. UNRWA told us that future  internal audits would assess UNRWA’s compliance with its neutrality and  antiterrorism policies for contractors, as well as internal controls for cash  assistance. According to agency officials, this will have resource  implications for the agency.
While internal audits have not focused on UNRWA’s overall cash  assistance activities, the UN Board of Auditors, UNRWA’s external auditor,  reported on instances of breakdowns or weaknesses in internal controls.  UNRWA officials reported that after the agency investigated a case of cash  assistance fraud in Gaza, the agency conducted a thorough reform of cash  management procedures and held the senior managers of the program  accountable for the systemic weaknesses identified and, in doing so,  requested and accepted the early retirement of the 2 most senior program  staff.  Specifically, UNRWA reported that following this incident, the Gaza  field office suspended emergency cash assistance (other than for shelter)  to individuals and focused cash assistance instead on clearly defined  target groups such as students enrolled in UNRWA schools and refugees  enrolled in the Special Hardship program. In addition, UNRWA told us that  it integrated its Emergency Cash Assistance program into a stand-alone  Emergency Program, which includes a unit to monitor the integrity of  emergency services.
section_title: Conclusions
paragraphs: It is an important U.S. goal to have processes in place to help ensure that  U.S. funding for Palestinian assistance programs is not provided to  individuals or entities engaged in terrorist activities. In recent years,  USAID, State, and UNRWA have strengthened their policies and  procedures to help ensure that assistance is not inadvertently provided to  terrorists. In response to our 2006 recommendation, USAID has clarified  its guidance and improved its system for vetting certain recipients of  USAID assistance, thereby significantly decreasing its vetting times. In  addition, State and UNRWA have agreed on a definition of terrorism,  which addresses a concern we raised in 2003.
USAID complied with all applicable antiterrorism-related requirements  when making its new prime awards in fiscal year 2008. Regarding prime  awardees’ fiscal year 2008 subawards identified by USAID, required vetting  occurred and applicable antiterrorism certifications were obtained.  However, we estimate that for approximately 17 percent of the fiscal year  2008 subawards identified by USAID, there was not sufficient information  to assess compliance. For the remaining subawards, we estimate that 5  percent did not contain the mandatory clauses at the time the subaward  was made.  In addition, the subaward information reported by prime  awardees was not always sufficient to monitor compliance. Action needs  to be taken to help ensure that mandatory clauses are included within  each document and that prime awardees provide USAID with sufficient  monthly information to clearly demonstrate that mandatory clauses have  been included in applicable subawards.
State has strengthened policies and procedures to determine whether  UNRWA’s efforts are consistent with its agreement to conform to U.S.  conditions on funds by, for example, recently introducing additional  mechanisms for communicating on section 301(c) issues with UNRWA.  However, State has neither defined criteria for evaluating UNRWA’s  conformance with its commitment for accepting U.S. funds nor screened  names of UNRWA contractors against the OFAC list. UNRWA has  strengthened its policies and procedures to conform with conditions on  U.S. funds, such as expanding screening of all recipients of UNRWA funds  against the UN 1267 list, but UNRWA’s internal audits do not determine  whether UNRWA contractors have signed contracts that include the  required antiterrorism clause or assess controls for UNRWA’s overall cash  assistance program. Addressing these weaknesses would provide greater  assurance that assistance is not inadvertently being provided to terrorists.
section_title: Recommendations for Executive Action
paragraphs: To strengthen compliance with USAID policies and procedures at the  subaward level, we recommend that the Administrator of USAID take  action to help ensure that  the mandatory clauses are included within each subaward contract or  agreement or, when not included within the contract or agreement there is  sufficient evidence to clearly establish that the subawardee has agreed to  comply with mandatory clauses at the time the award is made; and    prime awardees provide sufficiently detailed information in their monthly  subaward reports to clearly demonstrate that mandatory clauses were  included in the subaward at the time the award was made.
To help ensure that assistance is not inadvertently provided to terrorists,  we recommend that the Secretary of State consider taking additional steps  to oversee UNRWA’s conformance with U.S. conditions on funding, such  as (1) establishing criteria to evaluate UNRWA’s efforts; (2) screening the  names of UNRWA contractors against lists of individuals and entities of  concern to the United States; and (3) monitoring UNRWA’s commitment  that future internal audits would assess UNRWA’s compliance with its  neutrality and antiterrorism policies for contractors as well as internal  controls for cash assistance.
section_title: Agency Comments and Our Evaluation
paragraphs: USAID, State, and UNRWA provided written comments on a draft of this  report (see app. IV, V, and VI). USAID, State, and UNRWA outlined actions  they plan to take to implement our recommendations. USAID stated that  our work contributed positively to the continuous improvement and  strengthening of USAID West Bank and Gaza mission’s compliance with  antiterrorism policies and procedures. However, USAID disagreed with  the extent of our finding that insufficient evidence was present to assess  whether a significant percentage of subawards were in compliance. We  maintain that evidence was insufficient because the only references to the  purchase orders that were included on the mandatory clauses were  individual handwritten annotations. It was not clear who made the  annotations and when those annotations were made. To implement our  recommendations USAID stated that it will issue new instructions to the  mission’s prime awardees to help ensure that contracts and agreements  contain clear and specific references to attached clauses and clauses  likewise contain clear and specific references to the base agreement.  USAID also plans to instruct prime awardees to explain any  inconsistencies in their monthly subaward reports. Additionally, USAID  will require prime awardees to certify that their monthly subaward reports  are both accurate and complete.
State recognized that it is appropriate for the department to consider  taking additional steps to further ensure that U.S. assistance to UNRWA is  not inadvertently provided to terrorists. State concurred with two parts of  our recommendation.  State said that it will work with UNRWA to develop  criteria, as appropriate, as well as reporting requirements, which will be  documented in State and UNRWA’s Framework for Cooperation for 2010.  State also said that the internal audits we recommended would prove  beneficial to UNRWA’s operations and conformance with section 301(c)  and noted UNRWA’s written commitment to conduct internal audits of key  UNRWA processes. State is actively assessing the feasibility of screening  names of UNRWA contractors against lists of individuals and entities of  concern to the United States. State said that addressing two parts of our  recommendation will have resource implications for State and UNRWA,  since additional resources would be required to effectively screen names  and conduct additional internal UNRWA audits.
UNRWA also welcomed our report and findings and made a commitment  that future internal UNRWA audits would assess the agency’s compliance  with its neutrality and antiterrorism policies for contractors and internal  controls for cash assistance. UNRWA said it would facilitate State’s  monitoring of this commitment and work with State to develop criteria for  UNRWA’s conformance to section 301(c). In addition, USAID, State and  UNRWA provided technical comments on a draft of this report, which we  have incorporated as appropriate.
We are sending copies of this report to other congressional offices, State,  USAID, and UNRWA. 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) 512-9601 or melitot@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Other contacts and major contributors are listed in  appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) assess the extent to which the U.S. Agency for  International Development (USAID) has complied with its policies and  procedures to help ensure that its programs do not provide support to  entities or individuals associated with terrorism in the West Bank and  Gaza and (2) assess the Department of State’s (State) and UNRWA’s  policies and procedures to support conformance with U.S. statutory  conditions placed on contributions provided to UNRWA to prohibit  funding of terrorist-related activities.
subsections: section_title: USAID Policies and Procedures
paragraphs: To determine the extent to which t Gaza (the m policies and procedures to h support to entities Bank and Gaza, we identified releva as USAID policies  These legal and other requirem laws, executive orders, and mission’s primary document that details the procedures to comply with  applicable laws and executive  not provide The mission revised Mission its antiterrorism p recommendations we made in a 20 he USAID Mission to the West Bank and  ission) complied—at the prime and subaward levels—with its  elp ensure that its programs do not provide   or individuals associated with terrorism in the West  nt legal and other requirements as well  and procedures to comply with those requirements.  ents are contained in U.S. appropriations   the U.S. code. Mission Order 21 is the  orders to help ensure that assistance does   support to entities or individuals associated with terrorism.
Order 21 effective October 3, 2007 to update  rocedures in response to, among other things,  06 report.
We discussed the mission’s imp USAID Mission Direct and other officials responsible for managing assistance projects and  overseeing contracts, grants, an Missio interviewed five of USAID’s im relatively large do and the United States. We interviewed State, U involved in vetting USAID USAID’s Regional Inspector Ge audits of West Bank and G strengthen USAID’s auditing procedures. lementation of Mission Order 21 with the  or, senior staff, regional legal advisor, program staff,  d cooperative agreements at the USAID  n in Tel Aviv, Israel, and the U.S. Consulate in Jerusalem. We also  plementing partners that had received  llar contracts from USAID in the West Bank, Jerusalem,  SAID, and other officials   award recipients. In addition, we interviewed  neral in Cairo to determine the results of  aza assistance programs and steps taken to  e focused our review on the mission’s prime award contracts, grants,  W and cooperative agreements and subawards that were made during fiscal  year 2008 through the Economic Support Fund, in accordance with the  mandate contained in the Consolidated Appropriations Act for fiscal year  2008 (PL 110-161). To determine whether the mission’s prime awards  contained the applicable antiterrorism certification and clauses as  required by Mission Order 21, we reviewed copies of all 32 new prime  awards issued by the mission during fiscal year 2008. To determine  whether the subawards complied with relevant Mission Order 21  requirements, we selected a random stratified sample of 95 subawards  made to non-U.S. organizations and 49 subawards made to U.S.  organizations, a total of 144 subawards. Initially, we selected a random sample of 147 subawards. However, because one of the reported  subawards (to a U.S. organization) ide ntified by USAID was not actually  executed, we had a random sample of 146 subawards. We also removed  from the sample 2 subawards that did not require mandatory clauses,  resulting in a random stratified sample of 144 subawards. Our sample of 49subawards made to U.S. organizations was drawn from a subpopulation o f  101 subawards and our sample of 95 subawards made to non-U.S.  organizations was drawn from a subpopulation of 2,519 subawards. We  selected these subaward sample sizes to estimate compliance rates with confidence intervals of no more than plus or minus 10 percent for both th U.S. organizations and the non-U.S. organizations. The percentages report for all subawards are weighted to reflect the fact that we  oversampled the U.S. subawards in order to ensure that we obtained a  sufficient number for making projections for that strata.
We selected these random stratified samples from a universe of 2 fiscal year 2008 subawards identified by the mission based on subaward  activity reported to the mission by prime awardees. The mission  developed the universe by assembling the subaward spreadsheets that  were available as of October 2008 and provided by each partner who had  an active prime award during the period from October 3, 2007 through  September 30, 2008. The spreadsheets included U.S. and non-U.S.  subawards. From the subawards reported on these spreadsheets, the  mission identified subawards made during the period from October 1,  through September 30, 2008 and filtered out all subawards made outside of those dates. The mission then created a list containing the names of the  organizations receiving each subaward and the start and end date of each subaward. At our request, the mission then added information to the list t include the amount and type of each subaward (e.g. contract, grant). In  addition, if the mission found a subaward reported in New Israeli Shekels,  it replaced the amount in shekels with an estimated conversion to U.S.  dollars to help facilitate the GAO selection process. In addition, if the  mission found an entry with an end date listed as “immediately,” it  replaced this word with a date identical to the start date. The mission's  objective was to include all individual subaward agreements and exclude  any extensions and modifications to those awards.  However, according to  the mission, their attempt to exclude extensions and modifications was  o  limited to those instances in which the information was available from prime awardee’s monthly reports.  As a result, our sample included s modifications and extensions.  In addition, our sample included 2  instances in which prime awardees bundled multiple procurements and  reported them as a single subaward.  We did not attempt to correct for  these cases, but instead made a modification to the decision rules we us to determine compliance.
We examined in detail (1) the vetting documentation maintained by the  mission on its Partner Vetting System (PVS) to determine if the missio n  had vetted non-U.S. prime awardees and a sample of subawardees as  required by Mission Order 21 and (2) prime award and subaward  documentation for a sample of subawardees to determine if the  antiterrorism certifications were signed and the mandatory clauses wereincluded in the prime awards and subawards as required by Mission Orde 21. We reviewed the vetting information in the PVS for all four prime  awards made to non-U.S. organizations and a random stratified sample o 95 subawards made to non-U.S. organizations. The remaining 28  awards and 49 subawards were made to U.S. organizations, and so were not subject to vetting. We compared the vetting date to the determine if the mission vetted the appropriate non-U.S. organizations  prior to the date of award. To understand the mission’s vetting process, we interviewed various mission officials including the head of the Program  Support Unit, which is the division responsible for the vetting pro determine whether the subawards contained the required mandatory  clauses and whether required antiterrorism certifications were obtained,  we reviewed applicable documentation for a random sample of 95  subawards made to non-U.S. organizations and 49 subawards made to U.S.  organizations, a total of 144 subawards.
section_title: UNRWA Policies and Procedures
paragraphs: To assess UNRWA’s and State’s policies and procedures to support  conformance with U.S. statutory conditions placed on assistance to  UNRWA, we reviewed the applicable federal law—section 301(c) of the  Foreign Assistance Act of 1961, as amended. We also reviewed  documentation on 3 Frameworks for Cooperation between State and  UNRWA and 10 U.S. contributions letters that describe UNRWA’s  agreement to conform with U.S. conditions on funds for 2007 through  2009; State’s processes for overseeing UNRWA’s conformance to U. S.  conditions; and documents describing State discussions on UNRWA’s  conformance to U.S. conditions. We also interviewed State officials in  Amman, Jordan; Jerusalem; and Washington D.C., including the Regional  Refugee Coordinator in Jerusalem, who are responsible for implementing  section 301(c) and overseeing U.S. contributions to UNRWA.
To describe UNRWA policies and procedures to help ensure that all  possible measures were taken to assure U.S. funds were not used to  furnish assistance to any refugee who, among other things, engaged in any  act of terrorism, we reviewed our 2003 report on UNRWA, as well as  UNRWA and UN budget, policy, and program documents for fiscal years  2007 and 2008. We also examined five UNRWA semiannual reports on  UNRWA’s efforts to conform to agreements with U.S. conditions on fund from July 2006 through December 2008. These reports provide data on staff disciplinary actions, denial of benefits to refugees, inspection incursions into UNRWA facilities, and screening of recipients of  funds against the UN Security Council’s Al-Qaida and Taliban Sanctions  Committee Consolidated List (UN 1267 list). We also interviewed UNRWA  headquarters and field officials in Amman, Jordan and Jerusalem  responsible for implementing and overseeing UNRWA’s programs,  including the Commissioner-General; Deputy Commissioner-General;  Directors of UNRWA Field Offices; senior officials in the Departments of  Administrative Support, Finance, Internal Oversight, Legal Affairs, and  several program offices; and staff responsible for monitoring facilities in the West Bank and Gaza areas. Furthermore, to obtain information on  UNRWA’s programs and oversight activities in the agency’s refugee camp we visited three camps in the West Bank and outside Amman (Jalazone,  Jabal el-Hussein, and Baqa’a refugee camps) where we spoke with  UNRWA staff and Palestinian refugees about their understanding of the   the  agency’s policies and procedures. We also met with an official from government of Israel’s Ministry of Foreign Affairs Department for UN  Political Affairs.  dditionally, we compared a list of contractors used by UNRWA from 2002  A to 2009 with the U.S. Department of Treasury’s Office of Foreign Ass Controls (OFAC) Specially Designated Nationals and Blocked Person as of February 3, 2009. Our relatively basic computerized matching  comparison focused strictly on the “name” field supplied by UN OFAC, including both individuals and entities, although information fo the place of birth and date of birth fields were available for some  r  individuals in the OFAC list. The UNRWA list contained approximately  20,000 records with names, while the OFAC list contained approximately  9,000 primary names and more than 5,000 aliases. We removed “tokens” or  make  parts of names, such as prefixes or suffixes on names, in each list to  n  the matching process possible. For the UNRWA list of names, we the removed any name which only comprised one token, such as the name  “Ali.” The original OFAC list contained a string of information includin names, dates of birth, and places of birth that were wrapped on multiple  lines. After converting the data into a more usable form, taking into  account both primary names and aliases, we were able to produce a usable file from the OFAC list with approximately 14,600 names.
Matching was complicated by a number of factors, such as name formats  that varied, many names that had been translated from foreign languages and multiple aliases for some of the individuals named. We addressed  these issues to the extent possible with the available software and es  performed a comparison of these names to produce potential match between the two lists. While a perfect match between the two lists wou require the records in each list to be identically matched, we found that  ,  names in the two lists may have varied in terms of the number of tokens punctuation considerations, the translation of foreign sounding names an variations in spelling. Therefore, we identified records that were  reasonably similar to be potential matches. For each potential match, we  performed a manual review of the available information on the records  using other Internet sources, to help determine whether these were possible matches. It is worth noting that more sophisticated software,  specifically dedicated to the Arabic language that takes into account  linguistics or phonetic sounds for each name, may reveal additional  information abou t potential matches.
We conducted this performance audit from August 2008 to May 2009 in  accordance with generally accepted government auditing standards. Tho standards require that we plan and perform the audit to obtain sufficient,  nd  appropriate evidence to provide a reasonable basis for our findings a 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: USAID Mission to the West Bank and Gaza Vetting Process
paragraphs: Mission Order 21 states that the USAID Mission to the West Bank and  Gaza must vet certain non-U.S. recipients of USAID funding, which  involves checking recipients’ names and other identifying information  against databases and other information sources to determine if they are  involved with terrorism. The Program Support Unit (PSU) at the USAID  Mission coordinates the vetting process for those requiring vetting, as  shown in figure 1. ? ? is derogatory?
section_title: Appendix III: UNRWA Policies and Procedures for Cash Assistance, Staff Neutrality, Use of UNRWA Facilities, and Contractor Behavior
paragraphs: UNRWA has several policies and procedures to h and UNRWA’s conformance with conditions on receiving U.S. funds. This  appendix provides additional information on specific policies and  procedures that UNRWA uses to implement its cash assistance activities  and promote the neutrality of agency staff, facilities, and contractors.
subsections: section_title: Policies for Cash Assistance to Refugees
subsections: section_title: Policies for Special Hardship and Cash Assistance
paragraphs: UNRWA has policies to oversee the relief and social services assistance it  provides to refugees, including special instructions for Special Hardship,  selective, and emergency cash assistance. UNRWA policy is to provide  Special Hardship cash subsidies for food only to registered Palestinian  refugees. In addition, UNRWA staff are to screen applicants’ eligibility for  cash assistance. The screening process includes a home visit by a social  worker and follow-up checks to ensure assistance has been used for the  designated purpose. Under written UNRWA instructions for assistance, if a  family has other sources of income, such as Palestinian Authority  ministries or charitable organizations, it may be disqualified from receiving  UNRWA cash assistance. Agency officials also reported that UNRWA uses  a computerized distribution list for Special Hardship cash subsidies for  food, which has been reviewed by finance and social services staff in the  field. Similarly, agency policy states that senior field staff are responsible  for overseeing cash distributions, a social worker is required to be present  at each distribution point, and refugees must provide certain  documentation to receive cash assistance. In addition, senior officials in  the Department of Relief and Social Services are required to conduct  random visits and review case files to ensure proper handling of Special  Hardship cases by social workers and staff. Social workers are also to  rotate among areas to alleviate social pressures they may face from  refugees. UNRWA also recently introduced the use of a needs-based  formula, the proxy means test formula, as criteria for receipt of certain  social services, such as Special Hardship assistance, in order to target  benefits to those in most need.
section_title: Other Policies for Cash Assistance
paragraphs: UNRWA has additional measures to oversee its cash assistance activities.  For example, for both selective and emergency UNRWA cash assistance,  UNRWA policy is that social workers are to make field inquiries to  examine an applicant’s emergency circumstances prior to making a  recommendation for assistance. Depending on the amount of assistance  recommended, senior relief and social services officials at varying levels of  hierarchy must then review the recommendation. Social workers are to  conduct follow-up visits with beneficiaries, and senior field officials are to  perform random checks to determine whether funds are spent for  approved uses. In addition, relief and social services officials in the field  must report monthly to the head of the department on any selective or  emergency cash assistance approved and issued.
section_title: Policies and Procedures to Promote UNRWA Staff Neutrality
paragraphs: UNRWA reported that it has implemented various policies and procedure to promote staff neutrality, including both pre- and post-hire policies on  staff behavior. In cases where UNRWA investigates and finds staff  behavior inconsistent with UNRWA policies, UNRWA policy is to  discipline or terminate the staff.
subsections: section_title: General Policies for UNRWA Staff Neutrality
paragraphs: UNRWA reported that it has implemented various policies and procedures  to promote staff neutrality. For example, UNRWA requires staff to sign a  neutrality pledge in each employment contract and an annual verification  statement on outside activities. Officials reported that staff receive  information on neutrality policies during their induction upon  employment, including training on UNRWA privileges, immunities and  responsibilities, and staff receive ongoing guidance from senior officials in  the field and headquarters. UNRWA staff rules also require staff members  to avoid actions and public pronouncements that may adversely reflect on  the integrity, independence and impartiality required by their positions.  While UNRWA does not expect staff to give up their national sentiments or  their political and religious convictions, the agency requires staff to bear in  mind the reserve and tact incumbent upon them by their employment at  UNRWA. For instance, staff may exercise their right to vote, but may not  engage in any political activity inconsistent with independence and  impartiality. UNRWA staff rules and regulations do not prohibit  membership in and payment of norma l financial contributions to a  political party, provided that membership does not obligate, entail or  result in statements or actions that violate the staff member’s UN  neutrality and impartiality obligations.
section_title: Prehire Poli UNRWA Staff Neutrality
section_title: Policies for Investigating UNRWA Staff Behavior
paragraphs: UNRWA has also established procedures to investigate inappropriate staff  behavior, which may result in the disciplining or termination of staff ns or  example, investigations may consist of fact-finding investigatio formal Boards of Inquiry involving legal officers or senior management, with the technical assistance of UNRWA’s Department of Legal Affairs or  Department of Internal Oversight Services. Staff members have an  obligation to report misconduct and are protected from retaliation under  UNRWA’s whistleblower and antireprisal policy, and according to officia the agency takes swift disciplinary action whenever there is evidence of  staff member involvement in inappropriate political or military activities.  d  Officials stated that this disciplinary action is well-known, predictable an consistent, and has a deterrent effect. UNRWA told us the agency also has  formal procedures for staff to appeal investigation results through th UNRWA Joint Appeals Board, but the Commissioner General is  responsible for all final determinations. Staff may also seek recourse after  e  the UNRWA Joint Appeals Board process through the UN Administrat Tribunal, the decision of which is binding on UNRWA as a UN agen cy.
section_title: Rules and Regulations for the Use of UNRW A Facilities by Outside Entities
paragraphs: NRWA field offices have established rules and regulations for the use of  U UNRWA facilities in Jordan, Lebanon, and the West Bank by out entities, and the Gaza and Syria field offices have a policy of not permittin g  use of UNRWA facilities by any outside entity. Use of UNRWA facilities inJordan, Lebanon and the West Bank requires a formal written request and  approval by the field office director. Officials reported that a general  condition of any UNRWA approval is that the organization using an  UNRWA facility respects UN neutrality, and UNRWA may monitor the  event. The agency also has a policy of approving use of facilities for non- political activities only. However, UNRWA told us that it does allow  governmental authorities to request the use of facilities for polling  stations, providing that campaigning is not present. For example, the  government of Jordan has used UNRWA schools as polling stations.  Officials reported that the agency has also allowed the use of its facilities  for other approved purposes, including use by UNRWA summer camps  and by international organizations such as the United Nations Children’s  Fund and World Health Organization. In addition, certain communit based organizations, affiliated to varying extents with UNRWA, may use  nt to  premises provided by UNRWA in all five fields of operation, pursua conditions in a memorandum of understanding. Officials reported that  relief and social services staff work closely with and monitor such  organizations.
section_title: Policies and Procedures Regarding Contractor Behavior
paragraphs: UNRWA’s procurement policies and procedures communicate the  agency’s expectations for contractor behavior. In addition to its General  Conditions for Contract, which includes an antiterrorism clause, when  signing contracts with the agency, contractors must also abide by the UN Supplier Code of Conduct, which includes a conflict of interest and  corruption clause and outlines corporate policies and practices expected  of all UN suppliers. According to UNRWA officials, as a UN agency,  UNRWA also checks contractors against the UN Suspended/Removed  Vendor Report, which identifies those vendors confirmed to be doing  business in an unethical or corrupt manner. Individual contracts are  managed by procurement staff in the Department of Administrative  Services, and officials reported that any inappropriate conduct would  result in a termination of contract.
section_title: Appendix IV: Comments from the U.S. Agency for International Development
paragraphs: The following is GAO’s comment on USAID’s letter dated May 8, 2009.
subsections: section_title: GAO Comment
paragraphs: 1.  We maintain that evidence was insufficient to assess compliance  because the only references to the purchase orders that were included  on the mandatory clauses were individual handwritten annotations. It  was not clear who made the annotations and when those annotations  were made.
section_title: Appendix V: Comments from the U.S. Department of State
section_title: Appendix VI: Comments from the United Nations Relief and Works Agency for Palestine Refugees in the Near East
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Cheryl Goodman, Assistant  Director; Ashley Alley; Debbie Chung; John Craig; Martin de Alteriis, Justin  Fisher, Mitchell Karpman, Justin Monroe, Mary Moutsos; John Reilly;  Suneeti Shah; Elizabeth Singer; and Omar Torres made key contributions  to this report.