Afghanistan: USAID Oversight of Assistance Funds and Programs
Published: 2012-06-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2002, the United States has appropriated nearly $90 billion to help stabilize Afghanistan and build the Afghan governments capacity to provide security, enhance governance, and develop a sustainable economy. To assist Congress in its oversight, GAO has issued over 100 reports and testimonies related to U.S. efforts in Afghanistan, including those managed by USAID and the Departments of Defense and State. USAID provides assistance to Afghanistan through contracts and assistance instruments, such as grants and cooperative agreements, and in the form of direct assistancefunding provided through the Afghan national budget for use by its ministries. Direct assistance is provided (1) bilaterally to individual Afghan ministries or (2) multilaterally through trust funds administered by the World Bank and the United Nations Development Program. This testimony discusses findings from GAO reports issued primarily in 2010 and 2011 that cover USAIDs (1) management of contracts and assistance instruments, (2) oversight of development-related program performance and results, and (3) accountability for direct assistance.
section_title: What GAO Found
paragraphs: The U.S. Agency for International Development (USAID) has experienced systemic challenges that have hindered its ability to manage and oversee contracts and assistance instruments in Afghanistan. Key challenges include gaps in planning for the use of contractors and assistance recipients and having visibility into their numbers. For example, GAO reported in April 2010 that, absent strategic planning for its use of contractors, individual offices within USAID often made case-by-case decisions on using contractors to support contract or grant administration and risks, such as possible conflicts of interest, were not always addressed. While having reliable data on contractors and assistance recipients is a starting point for informing agency decisions and ensuring proper management, GAO has also reported on limitations in USAIDs visibility into the number and value of contracts and assistance instruments in Afghanistan, as well as the number of personnel working under them. USAID, along with other agencies, has not implemented GAOs recommendation to address such limitations. USAID, however, has taken other actions to mitigate risks associated with awarding contracts and assistance instruments in Afghanistan. In June 2011, GAO reported on USAIDs vendor vetting program, then in its early stages, which was designed to counter potential risks of U.S. funds being diverted to support criminal or insurgent activity. GAO recommended that USAID take a more risk-based approach to vet non-U.S. vendors and develop formal mechanisms to share vetting results with other agencies, both of which USAID agreed to do.
GAO has found systematic weaknesses in USAIDs oversight and monitoring of project and program performance in Afghanistan. In 2010, GAO reported that USAID did not consistently follow its established performance management and evaluation procedures for Afghanistan agriculture and water sector projects. For example, only two of seven USAID-funded agricultural programs included in GAOs review had targets for all their performance indicators. Moreover, the USAID Mission was operating without a required performance management plan. In addition, GAO reported on a lack of documentation of key programmatic decisions and an insufficient method to transfer knowledge to successors. USAID has taken several actions in response to these findings, such as updating its performance management plan and establishing mandatory guidelines on file maintenance to help ensure knowledge transfer.
USAID has established and generally complied with various financial and other controls in its direct assistance agreements, such as requiring separate bank accounts and maintenance of records subject to audit. However, GAO found in 2011 that USAID had not always assessed the financial risks in providing direct assistance to Afghan government entities before awarding funds. For example, USAID did not complete preaward risk assessments in two of eight cases of bilateral assistance GAO identified. With regard to direct assistance provided multilaterally through the World Banks Afghanistan Reconstruction Trust Fund (ARTF), GAO found in 2011 that USAID had not consistently complied with its own risk assessment policies, and USAID had not conducted a risk assessment before awarding $1.3 billion to ARTF in March 2010. In response to GAO reports, USAID revised and expanded its guidance on preaward risk assessments for the World Bank and other public international organizations.
section_title: What GAO Recommends
paragraphs: GAO is not making new recommendations but has made numerous recommendations aimed at improving USAIDs management and oversight of assistance funds in Afghanistan. USAID has generally concurred with most of these recommendations and has taken or planned steps to address them.

section_title: Letter
paragraphs: We are pleased to be here to discuss accountability and oversight of  funds provided by the U.S. Agency for International Development  (USAID) to assist Afghanistan. Since 2002, the United States has  appropriated nearly $90 billion to help secure, stabilize, and rebuild  Afghanistan. To assist Congress in its oversight, we have issued over 100  reports and testimonies related to U.S. efforts in Afghanistan, including  those managed by USAID and the Departments of Defense and State.  Our reviews have focused on the U.S. strategy for Afghanistan, as well as  on specific U.S. efforts that build the Afghan government’s capacity to  provide security, enhance governance, and develop a sustainable  economy.  While drawing on our past work that identified numerous  challenges faced by U.S. agencies in Afghanistan, our statement today  focuses on USAID, which, among other things, has assisted Afghanistan  in the construction of roads, expansion of health and education, and  development of water and agricultural sectors. Specifically, we will  discuss findings from reports that cover USAID’s (1) management of  contracts and assistance instruments, such as grants and cooperative  agreements; (2) oversight of development-related program performance  and results; and (3) accountability for direct assistance—funding provided  through the Afghanistan national budget for use by its ministries.
Detailed information on the scope and methodology for our prior work can  be found in the reports we have cited throughout this statement. We  conducted the underlying performance audits in accordance with  generally accepted government auditing standards. Those standards  require that we plan and perform the audits 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 statement today.
USAID assists Afghanistan through the issuance of contracts and  assistance instruments and also by providing direct assistance. Contracts  and assistance instruments are awarded to USAID’s implementing  partners, who in turn carry out development programs and otherwise  support USAID’s mission in Afghanistan. For fiscal year 2011, USAID  reported that it obligated $2.9 billion on contracts and had assistance  instruments with a value of $705.9 million with performance in  Afghanistan. In contrast, direct assistance is provided through the Afghan  budget either (1) bilaterally to individual Afghan ministries or  (2) multilaterally through trust funds administered by the World Bank and  the United Nations Development Program. In 2010, international donors  agreed to increase the portion of their development aid that is delivered  through the Afghan government if the Afghan government showed  progress in reducing corruption and strengthening its public financial  management systems. Following that agreement, the United States  shifted more funding toward direct assistance, more than tripling such  awards—from $665 million in fiscal year 2009 to $2 billion in fiscal year  2010. USAID was the largest contributor of that direct assistance, with its  awards growing from $470 million in fiscal year 2009 to more than  $1.4 billion in fiscal year 2010, largely through the Afghanistan  Reconstruction Trust Fund (ARTF) administered by the World Bank. In  2012, USAID reaffirmed its commitment to increase the amount of  development assistance provided through the Afghan budget.
subsections: section_title: USAID Faces Challenges in Managing Contracts and Assistance Instruments
paragraphs: In carrying out its Afghan assistance efforts, USAID has experienced a  number of systemic challenges that have hindered its ability to manage  and oversee contracts and assistance instruments, such as grants and  cooperative agreements. These challenges include gaps in planning for  the use of contractors and assistance recipients and having visibility into  their numbers. While this statement focuses on the challenges  confronting USAID in Afghanistan, our work involving the Departments of  Defense and State has found similar issues not only in Afghanistan but  also in other countries, such as Iraq. The need for visibility into contracts  and assistance instruments to inform decisions and perform oversight is  critical, regardless of the agency or the country, as each agency relies  extensively on contractors and assistance recipients to support and carry  out its respective missions. While USAID has faced challenges, it has  also taken actions to help mitigate some of the risks associated with  awarding contracts and assistance instruments in Afghanistan. Most  notably, through its vendor vetting program, USAID seeks to counter  potential risks of U.S. funds being diverted to support criminal or  insurgent activity.
Our work has identified gaps in USAID’s planning efforts related to the  role and extent of reliance on contractors and grantees. For example, we  reported in April 2010 that USAID’s workforce planning efforts, including  its human capital and workforce plans, do not address the extent to which  certain types of contractors working outside the United States should be  used. We further reported in June 2010 that USAID’s workforce plan for  fiscal years 2009 through 2013 had a number of deficiencies, such as  lacking supporting analyses that covered the agency’s entire workforce,  including contractors, and not containing a full assessment of the  agency’s workforce needs, including identifying existing workforce gaps  and staffing levels required to meet program needs and goals. Such  findings are not new. We noted, for example, in our 2004 and 2005  reviews of Afghanistan reconstruction efforts, when USAID developed its  interim development assistance strategy, it did not incorporate information  on the contractor and grantee resources required to implement the  strategy. We determined that this hindered USAID’s ability to make  informed decisions on resource allocations for the strategy. Further, as  mentioned earlier, such findings have not been unique to USAID. For  example, in our April 2010 report, we noted that the Department of State’s  workforce plan generally does not address the extent to which contractors  should be used to perform specific functions, such as contract and grant  administration.
In the absence of strategic planning for its use of contractors, we found  that it was often individual offices within USAID that made case-by-case  decisions on the use of contractors to support contract or grant  administration functions. In our April 2010 report, we noted that USAID  used contractors to help administer its contracts and grants in  Afghanistan, in part to address frequent rotations of government  personnel, as well as security and logistical concerns. Functions  performed by these contractors included on-site monitoring of other  contractors’ activities and awarding and administering grants. The  Departments of Defense and State have also relied on contractors to  perform similar functions in both Afghanistan and Iraq. While relying on  contractors to perform such functions can provide benefits, we found that  USAID did not always fully address related risks. For example, USAID did  not always include a contract clause required by agency policy to address  potential conflicts of interest, and USAID contracting officials generally did  not ensure enhanced oversight in accordance with federal regulations for  situations in which contractors provided services that closely supported  inherently governmental functions.
Over the last four years, we have reported on limitations in USAID’s  visibility into the number and value of contracts and assistance  instruments with performance in Afghanistan, as well as the number of  personnel working under those contracts and assistance instruments.  Having reliable, meaningful data on contractors and assistance recipients  is a starting point for informing agency decisions and ensuring proper  management and oversight. In 2008, in response to congressional  direction, USAID along with the Departments of Defense and State  designated the Synchronized Predeployment and Operational Tracker  (SPOT) database as their system of record to track statutorily required  information on contracts and contractor personnel working in either Iraq  or Afghanistan, a designation which the agencies reaffirmed when the  requirement was expanded to include assistance instruments and  associated personnel. However, we found that as of September 2011,  SPOT still did not reliably track this information. As a result, USAID relied  on other data sources, which had their own limitations, to prepare a 2011  report to Congress. Specifically, we found USAID’s reporting to be  incomplete, particularly in the case of personnel numbers that were based  on unreliable data. For example, for the number of contractor and  assistance personnel in Afghanistan, USAID developed estimates that,  according to a USAID official, were based in part on reports submitted by  only about 70 percent of its contractors and assistance recipients.  Further, USAID acknowledged that it had limited ability to verify the  accuracy or completeness of the data that were reported. Similarly, we  found that the Department of Defense underreported the value of its  contracts in Iraq and Afghanistan by at least $3.9 billion, while the  Department of State did not report statutorily required information on  assistance instruments and the number of personnel working on them in  either country.
Given the repeated limitations we have found in SPOT and the ability of  USAID, Defense, and State to provide statutorily required information, we  recommended in 2009 and then subsequently reiterated that the three  agencies develop a joint plan with associated time frames to address  limitations and ensure SPOT’s implementation to fulfill statutory  requirements. In response to our 2009 recommendation, USAID did not  address the recommendation, while the Departments of Defense and  State cited on-going interagency coordination efforts as sufficient.  However, we concluded that based on our findings, coordination alone is  not sufficient and have continued to call for the agencies to develop a  plan. We have recently begun reviewing the three agencies’ April 2012  report to Congress on their contracts, assistance instruments, and  associated personnel in Iraq and Afghanistan and the actions they are  taking to improve their database.
Commission on Wartime Contracting in Iraq and Afghanistan, Transforming Wartime  Contracting: Controlling Costs, Reducing Risks (Arlington, Va.: Aug. 2011). settings, ensuring the government can provide sufficient acquisition  management and contractor oversight, and taking actions to mitigate the  threat of additional waste due to a lack of sustainment by host  governments. We are currently reviewing what actions USAID and the  Departments of Defense and State are taking to address the  Commission’s recommendations.
In response to continued congressional attention and their own concerns  about actual and perceived corruption and its impact on U.S. and  international activities in Afghanistan, U.S. government agencies have  established efforts to identify malign actors, encourage transparency, and  prevent corruption. Under the auspices of its Accountable Assistance for  Afghanistan initiative, USAID is seeking to address some of the  challenges associated with providing assistance in Afghanistan. One  element of the initiative is the vendor vetting program. In January 2011, in  order to counter potential risks of U.S. funds being diverted to support  criminal or insurgent activity, USAID created a process for vetting  prospective non-U.S. contractors and assistance recipients (i.e.,  implementing partners) in Afghanistan. This process is similar to the one  USAID has used in the West Bank and Gaza since 2006. USAID’s  process in Afghanistan was formalized in a May 2011 mission order,  which established a vetting threshold of $150,000 and identified other risk  factors, such as project location and type of contract or service being  performed by the non-U.S. vendor or recipient. The mission order also  established an Afghanistan Counter-Terrorism Team that can review and  adjust the risk factors as needed.
At the time our June 2011 report on vetting efforts was issued, USAID  officials said that the agency’s vendor vetting process was still in the early  stages, and that it would be an iterative implementation process, some  aspects of which could change—such as the vetting threshold and the  expansion of vetting to other non-U.S. partners. We recommended that  USAID consider formalizing a risk-based approach that would enable it to  identify and vet the highest-risk vendors and partners, including those  with contracts below the $150,000 threshold. We also made a  recommendation to promote interagency collaboration to better ensure  that non-U.S. vendors potentially posing a risk are vetted. Specifically, we  recommended that USAID, the Department of Defense (which had a  vendor vetting program), and the Department of State (which did not have  a vendor vetting program comparable to USAID’s or Defense’s) should  consider developing formalized procedures, such as an interagency  agreement, to ensure the continuity of communication of vetting results  and to support intelligence information, so that other contracting activities  may be informed by those results. USAID concurred with our  recommendations and noted that the agency had already begun to  implement corrective measures to ensure conformity with our  recommendations and adherence to various statutes, regulations, and  executive orders pertaining to terrorism. Specifically, under the May 2011  mission order, the Afghanistan Counter-Terrorism Team is to work to  establish an interagency decision-making body in Afghanistan to  adjudicate vetting results, establish reporting metrics for USAID’s vetting  process, and work with the vetting unit to modify as needed the criteria  used to establish risk-based indicators for vetting.
section_title: USAID Has Taken Some Action to Strengthen Oversight of Program Performance
paragraphs: We have previously reported on systematic weaknesses in USAID’s  oversight and monitoring of the performance of projects and programs  carried out by its implementing partners in Afghanistan. In 2010, we  reported that USAID did not consistently follow its established  performance management and evaluation procedures with regard to its  agriculture and water sector projects in Afghanistan.There were various  areas in which the USAID Mission to Afghanistan needed to improve. We  found that the Mission had been operating without an approved  Performance Management Plan to guide its oversight efforts after 2008.  In addition, while implementing partners had routinely reported on the  progress of USAID’s programs, we found that USAID did not always  approve the performance indicators these partners were using and did  not ensure, as its procedures require, that implementing partners  establish targets for each performance indicator. For example, only two of  seven USAID-funded agricultural programs that were active during fiscal  year 2009 and included in our review had targets for all of their indicators.  Within the water sector, we found that USAID collected quarterly progress  reports from five of the six water project implementers for the projects we  reviewed, but it did not analyze and interpret this information as required.  We also found that USAID could improve its assessment and use of  performance data submitted by implementing partners or program  evaluations to, among other things, help identify strengths or weaknesses  of ongoing or completed programs.
In addition, USAID officials face a high risk security environment and the  USAID Mission to Afghanistan has experienced high staff turnover, which  hinder program oversight. For example, in July 2010, we reported that the  lack of a secure environment has challenged the ability of USAID officials  to monitor construction and development efforts.Also, USAID  personnel are assigned 1-year assignments with an option to extend  assignments for an additional year—which USAID acknowledged  hampered program design and implementation. The Department of  State’s Office of the Inspector General noted in its 2010 inspection of the  entire embassy and its staff, including USAID, that 1-year assignments  coupled with multiple rest-and-recuperation breaks limited the  development of expertise and contributed to a lack of continuity. We  also found that a lack of documentation of key programmatic decisions  and an insufficient method to transfer knowledge to successors had  contributed to the loss of institutional knowledge—a challenge that we  reported USAID should address.
In the absence of consistent application of its existing performance  management and evaluation procedures and the lack of mechanisms for  knowledge transfer, USAID programs are more vulnerable to corruption,  waste, fraud, and abuse. In 2010, we recommended, among other things,  that the Administrator of USAID take steps to (1) address preservation of  institutional knowledge, (2) ensure programs have performance indicators  and targets, and (3) consistently assess and use program data and  evaluations to shape current programs and inform future programs.
USAID concurred with these recommendations and identified several  actions the agency is taking in Afghanistan to address them, including the  following:   In 2011, USAID established mandatory technical guidance for  program monitoring officials on how to establish and where to  maintain files, in addition to key responsibilities of the office director to  ensure that files are maintained before officials leave their positions.
In 2010, USAID approved a new performance management plan for  its agriculture programs and worked with its implementing partners to  align their existing indicators with those in the new plan.
In 2011, USAID delegated more authority to field program officers to  serve as activity managers of agriculture programs, making them  responsible for conducting regular project monitoring and reporting on  program performance, verifying data reported by implementing  partners, and assuring the quality of data being reported through  regular site visits. In addition, USAID has taken steps to increase the  use of third-party monitoring to ensure data integrity and quality.
section_title: USAID Has Taken Some Action to Improve Accountability of Direct Assistance
paragraphs: Risk assessments and internal controls to mitigate identified risks are key  elements of an internal control framework to provide reasonable  assurance that agency assets are safeguarded against fraud, waste,  abuse, and mismanagement. Although USAID conducted preaward risk  assessments for most of its bilateral direct assistance to the Afghan  government, we found that USAID’s policies did not require preaward risk  assessments in all cases. For example, we reported in 2011 that USAID  did not complete preaward risk assessments, such as determining the  awardees’ capability to independently manage and account for funds, in  two of the eight cases of bilateral direct assistance. USAID made those  two awards after the USAID Administrator had committed to Congress in  July 2010 that USAID would not proceed with direct assistance to an  Afghan ministry before it had assessed the institution’s capabilities. We  recommended that USAID update its risk assessment policies to reflect  the USAID Administrator’s commitment to Congress. USAID has since  updated its policies to require preaward risk assessments for all bilateral  direct assistance awards, periodic reassessment, and risk mitigation  measures, as appropriate. Since October 2011, USAID has awarded  $35 million in direct assistance funds to two Afghan ministries and, in  compliance with its updated policies, completed risk assessments prior to  awarding the funds in both cases.
We also found that USAID established general financial and other  controls in its bilateral direct assistance agreements with Afghan  ministries, including requiring that the ministries: establish separate noncommingled bank accounts, grant USAID access rights to the bank accounts, have a monitoring and evaluation plan,  comply with periodic reporting requirements, and maintain books and records subject to audit.
In addition to these general financial controls, USAID is required to  establish additional monitoring and approval controls in its direct bilateral  assistance agreements that provide USAID funds to Afghan ministries to  contract for goods and services. USAID had agreements with two  Afghan ministries that allowed them to contract out. However, we  previously found that USAID did not always document its approval of  these ministries’ procurements prior to contract execution. We  recommended that USAID ensure compliance with the monitoring and  approval requirements. We are now following up with USAID to ensure it  is implementing our recommendation.
With respect to direct assistance provided multilaterally through public  international organizations such as the World Bank, USAID’s policy is to  generally rely on the organization’s financial management, procurement,  and audit policies and procedures. We found, however, that USAID has  not consistently complied with its multilateral trust fund risk assessment  policies in awarding funds to the World Bank’s ARTF. For example, in  2011, we reported that USAID did not conduct a risk assessment before  awarding an additional $1.3 billion to the World Bank for ARTF.We also  found that USAID did not conduct preaward determinations for 16 of  21 modifications to the original World Bank grant agreement. In response  to our findings and a prior GAO report, USAID revised and expanded its  guidance on preaward risk assessments for the World Bank and other  public international organizations.  Under the revised guidance, USAID  is required to determine the World Bank’s level of responsibility through  consideration of several factors, including the quality of the World Bank’s  past performance and its most recent audited financial statements.
The World Bank has established financial controls over donor  contributions to the ARTF. For example, the World Bank hired a  monitoring agent responsible for monitoring the eligibility of salaries and  other recurrent expenditures that the Afghan government submits for  reimbursement against ARTF criteria. The World Bank also reports that it  assesses projects semi-annually as part of regular World Bank  supervision in accordance with its policies, procedures and guidelines  based in part on project visits. However, we found examples that the  financial controls established by the World Bank over the ARTF face  several challenges:
The World Bank and international donors have expressed concern  over the level of ineligible expenditures submitted by the Afghan  government for reimbursement. While ineligible expenditures are not  reimbursed, the bank considers the level of ineligible expenditures to  be an indicator of weaknesses in the Afghan government’s ability to  meet agreed-upon procurement and financial management standards.
Afghanistan’s Control and Audit Office conducts audits of Afghan  government programs, including those funded by the ARTF, but  lacked qualified auditors and faced other capacity restraints,  according to the Special Inspector General for Afghanistan  Reconstruction and USAID. As a result, the office used international  advisers and contracted auditors, funded by the World Bank, to help  ensure that its audits of ARTF complied with international auditing  standards.
Security conditions prevented Afghanistan’s Control and Audit Office  auditors from visiting most of the provinces where ARTF funds were  being spent. The office was able to conduct audit tests in 10 of  Afghanistan’s 34 provinces from March 2009 to March 2010 and  issued a qualified opinion of the financial statements of ARTF’s salary  and other recurrent expenditures.
Mr. Chairman, Ranking Member Carnahan, and Members of the  Subcommittee, this concludes our statement. We would be happy to  answer any questions you may have at this time.
section_title: Contacts and Acknowledgments
paragraphs: For further information on this statement, please contact John P. Hutton  at (202) 512-4841 or huttonj@gao.gov or Charles Michael Johnson, Jr. at  (202) 512-7331 or johnsoncm@gao.gov. In addition, contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this statement. Individuals who made key contributions  to this statement include Johana R. Ayers, Assistant Director; Tetsuo  Miyabara, Assistant Director; Pierre Toureille, Assistant Director; Thomas  Costa; David Dayton; Emily Gupta; Farahnaaz Khakoo-Mausel; Bruce  Kutnick; Angie Nichols-Friedman; Mona Sehgal; and Esther Toledo.
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