International Cash-Based Food Assistance: USAID Has Developed Processes for Initial Project Approval but Should Strengthen Financial Oversight
Published: 2015-03-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: For over 60 years, the United States has provided assistance to food-insecure countries primarily in the form of food commodities procured in the United States and transported overseas. In recent years, the United States has joined other major donors in increasingly providing food assistance in the form of cash or vouchers. In fiscal year 2014, U.S.-funded cash and voucher projects in 28 countries totaled about $410 million, the majority of which was for the Syria crisis, making the United States the largest single donor of cash-based food assistance. GAO was asked to review USAID's use of cash-based food assistance. In this report, GAO (1) reviews USAID's processes for awarding and modifying cash-based food assistance projects and (2) assesses the extent to which USAID and its implementing partners have implemented financial controls to help ensure appropriate oversight of such projects. GAO analyzed program data and documents for selected projects in Jordan, Kenya, Niger, and Somalia; interviewed relevant officials; and conducted fieldwork in Jordan, Kenya, and Niger.
section_title: What GAO Found
paragraphs: The U.S. Agency for International Development (USAID) awards new cash-based food assistance grants under its Emergency Food Security Program (EFSP) through a competitive proposal review or an expedited noncompetitive process; however, USAID lacks formal internal guidance for modifying awards. In its review of 22 grant awards, GAO found that USAID made 13 through its competitive process, 7 through an abbreviated noncompetitive review, and 2 under authorities allowing an expedited emergency response. According to USAID, the agency follows a similar process for cost modification requests. Partners may propose cost or no-cost modifications for a variety of reasons, such as an increase in the number of beneficiaries or changing market conditions affecting food prices. In a review of 13 grant awards that had been modified, GAO found that 8 had cost modifications resulting in funding for all 13 awards increasing from about $91 million to $626 million. According to USAID, draft procedures for modifying awards are under review and will be incorporated into its guidance, but it could not provide a time frame. Until USAID institutes formal guidance, it cannot hold its staff and implementing partners accountable for taking all necessary steps to justify and document the modification of awards. GAO also found that though USAID requires partners to monitor market conditions—a key factor that may trigger an award modification—it does not provide guidance on when and how to respond to changing market conditions.
USAID relies on implementing partners for financial oversight of EFSP projects but does not require them to conduct comprehensive risk assessments to plan financial oversight activities, and it provides little related procedural guidance to partners and its own staff. For projects in four case study countries, GAO found that neither USAID nor its implementing partners conducted comprehensive risk assessments to identify and mitigate financial vulnerabilities. Additionally, although USAID's partners had generally implemented financial controls over cash and voucher distributions that GAO reviewed, some partners' guidance for financial oversight had weaknesses, such as a lack of information on how to estimate and report losses. In addition, GAO found that USAID had limited guidance on financial control activities and provided no information to aid partners in estimating and reporting losses. As a result, partners may neglect to implement appropriate financial controls in areas that are most vulnerable to fraud, diversion, and misuse of EFSP funding.
section_title: What GAO Recommends
paragraphs: GAO is making recommendations to strengthen USAID's guidance for staff on approving award modifications and its guidance for partners on responding to changing market conditions. GAO is also making recommendations to strengthen financial oversight of cash-based food assistance projects by addressing gaps in USAID's guidance on risk assessments and mitigation plans and on financial control activities. USAID concurred with the recommendations.

section_title: Letter
paragraphs: For over 60 years, the United States—the largest single donor of  international food assistance—has provided assistance to food-insecure  countries primarily in the form of food commodities purchased in the  United States and transported overseas to be donated as in-kind aid. In  recent years, however, the United States has joined other major donors in  increasingly providing food assistance in the form of cash or vouchers  distributed to food-insecure individuals so that they can purchase food in  their local markets. The administration’s proposals for reforming U.S. food  aid have called for a more expansive use of cash-based assistance. To  provide food assistance to address humanitarian crises around the world,  the U.S. Agency for International Development (USAID), through its  Office of Food for Peace (FFP), currently implements a cash-based  program—the Emergency Food Security Program (EFSP)—with funding  from the International Disaster Assistance account,2014 was about $410 million and totaled about $991 million in fiscal years  2010 through 2014 for its targeted cash transfer and food voucher   which in fiscal year  programs. In addition, FFP manages the majority of U.S. international  food assistance—primarily in-kind food aid commodities—authorized by  Title II of the Food for Peace Act, which in fiscal year 2015 totaled about  $1.47 billion. According to USAID, it uses cash-based food assistance  when in-kind food aid cannot arrive in time to respond to an emergency  and when food assistance delivered through cash transfers or voucher  programs may be more appropriate than U.S. in-kind food aid because of  local market conditions and beneficiaries’ preferences, among other   The administration’s fiscal year 2016 budget proposed food  factors.assistance reforms that, according to USAID, provide certain flexibilities  that would enable the U.S. government to reach up to 2 million more  people in food crises around the world with the same level of resources  authorized through both EFSP and Title II. Specifically, the administration  proposed the authority to use up to 25 percent of Title II resources for  flexible cash-based interventions, which according to USAID, have  proven critical to effectively responding to complex and logistically  challenging emergencies such as the humanitarian crises in Syria  because of the ongoing civil war there and in the Philippines because of  the aftermath of Typhoon Haiyan. According to the administration, this  proposal and other reforms aim to provide a more agile and modern  approach to U.S. food assistance, combining the continued purchase of  food aid commodities procured in the United States with the flexibility of  cash-based assistance.
You asked us to review USAID’s use of cash-based food assistance  interventions as part of our continuing audit work on international food  assistance. In this report, we (1) review USAID’s processes for awarding  and modifying cash-based food assistance projects and (2) assess the  extent to which USAID and its implementing partners have implemented financial controls to help ensure appropriate oversight of such projects.
For purposes of this report, we use the term “implementing partners” to refer to entities  such as WFP, FAO, and NGOs that are awarded U.S. government grants to carry out food  assistance activities overseas. WFP and FAO may contract with international and local  NGOs as subawardees. These NGOs include international humanitarian aid organizations  such as Catholic Relief Services, Mercy Corps, Save the Children, World Vision;  international and local private voluntary organizations; and other entities. have designed and implemented against their policies, procedures,  guidance, and federal internal control standards and international  principles and guidelines. In Washington, D.C., we interviewed officials  from the Department of State (State), the U.S. Department of Agriculture  (USDA), and USAID. We also met with officials representing NGOs that  were awarded USAID EFSP grants to serve as implementing partners in  carrying out U.S. food assistance programs overseas or were WFP  subawardees for USAID grants awarded to WFP (and in some cases  were both). In Rome, we met with officials from the U.S. Mission to the  United Nations, FAO, and WFP. We also met with the UN permanent  representatives for three major donors—Canada, the European Union,  and the United Kingdom. In addition, we selected for review four case  study countries whose inhabitants or refugees were beneficiaries of EFSP  grants (Jordan, Kenya, Niger, and Somalia) and conducted fieldwork in  three countries (Jordan for Syrian refugees, Kenya, and Niger) where we  met with officials from the U.S. missions, implementing partners, vendors,   Our case study  financial institutions, and beneficiaries, among others.selection was based on several criteria, including size of EFSP funding,  types of cash and voucher projects, and implementing partners.
We conducted this performance audit from February 2014 to March 2015  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. Appendix I provides a detailed  discussion of our objectives, scope, and methodology.
subsections: section_title: Background
paragraphs: USAID’s cash-based food assistance program started in 2008 under the  management of its Office of Foreign Disaster Assistance. In June 2010,  management of the program was transferred to FFP. In 2014, FFP  provided funding for cash and voucher programs in 28 countries as  shown on the map in figure 1. EFSP projects are implemented in some  countries—for example, Somalia, Syria, and Yemen—with areas  considered high risk based on security risk scores that the United Nations  uses to assess the overall level of threat or danger.
subsections: section_title: U.S. Cash-Based Food Assistance Has Significantly Increased Since 2010, and the Majority of Aid Went to the Syria Region
paragraphs: In fiscal years 2010 through 2014, USAID awarded EFSP grants totaling  about $991 million for cash-based food assistance. The following  observations are shown in figure 2:
Obligations for cash-based EFSP projects grew from $75.8 million in  fiscal year 2010 to $409.5 million in fiscal year 2014—an increase of  440 percent over the 5-year period, the majority of which was in response to a large and sustained humanitarian crisis in Syria.
Of the $409.5 million awarded by EFSP in fiscal year 2014, $272.7  million (67 percent) was for the humanitarian crisis in Syria, including  cash-based food assistance to Syrian refugees in the Syria region.
WFP was the implementing partner for $331.6 million (81 percent) of  total EFSP obligations in fiscal year 2014, while NGOs and others  were implementing partners for the remaining $77.8 million (19  percent).
Of the $991 million in total grant funding obligated in fiscal years 2010  to 2014, $330.6 million was for cash interventions and $660.3 million  for voucher interventions. The majority of the funding—$621.7 million  (or 63 percent)—was awarded to WFP, and $369.3 million (or 37  percent) was awarded to other implementing partners.
section_title: International Donors Have Recognized the Benefits of Cash-Based Food Assistance and Have Increasingly Supported It
paragraphs: Donors have recognized the potential benefits of cash-based assistance  under certain conditions and have increased funding to support it.  According to donor representatives, implementing partners, and  academics, cash-based assistance can improve the food security of  recipients in a more efficient manner than in-kind food aid. Targeted cash  transfers or food vouchers can be distributed more quickly than food  delivery, which requires procuring and shipping food commodities, a  complex and lengthy process. The costs associated with cash-based  assistance might also be less than the cost of shipping food commodities  from the United States to recipient countries. Additionally, according to  some donor representatives and implementing partners, cash-based  assistance can have the benefit of providing recipients with flexibility and  dignity to choose the type of food they want to eat (see fig. 3).  Furthermore, by increasing demand for food commodities through cash or  vouchers, cash-based assistance can stimulate the local economy and  support local producers and merchants.
WFP has seen its cash and voucher programs significantly increase from  $139 million in 2010 to $1.37 billion in 2014—with the largest increases  occurring between 2012 and 2014 owing primarily to the civil war in  Syria. In 2014, funding for cash and voucher programs for the Syria  regional emergency operation accounted for $836 million or about 61  percent of WFP’s overall funding for cash and voucher programs (see fig.  4). However, other cash and voucher programs, excluding those for Syria,  also experienced substantial increases over the same years, from $139  million in 2010 to $531 million in 2014.
section_title: USAID’s Implementing Partners Use a Range of Mechanisms to Deliver Cash-Based Food Assistance
paragraphs: To deliver cash-based food assistance, USAID’s implementing partners  employ a variety of mechanisms ranging from direct distribution of cash in  envelopes to the use of information technologies such as cell phones and  smart cards to redeem electronic vouchers or access accounts  established at banks or other financial institutions. These assistance  delivery mechanisms can be grouped into four types—two cash transfer  mechanisms that provide money to targeted households with no  restrictions on how or where the money is to be used, and two voucher- based mechanisms that entitle the holder to buy goods or services up to  the cash value written on the voucher, typically for the purchase of  approved items from participating vendors (see fig. 5). The cash and  voucher transfers can be either (1) conditional transfers, where certain  requirements are imposed on beneficiaries such as their participation in  community work programs or attending training or going to school; or (2)  unconditional transfers, whereby no requirements on beneficiaries are  made, and the assumption is that beneficiaries will use the cash or  vouchers to obtain food based on a household assessment of food  access and availability. The value of cash and voucher transfers is  generally based on a formula that attempts to bridge the gap between  people’s food needs and their capacity to cover them.
section_title: Financial Oversight for Cash-Based Food Assistance Entails Assessing Risks and Implementing Control Activities
paragraphs: Financial oversight in cash-based food assistance programs includes  managing program funds to ensure they are spent in accordance with  grant agreements by, among other things, assessing financial risks and  implementing controls to mitigate those risks, including controls to prevent  theft and diversion of cash, counterfeiting of vouchers, and losses. In  recent years, for example, implementing partners have been increasingly  piloting the use of technology that they deem to have the additional  benefit of mitigating some potential risks by better tracking beneficiaries  and their purchases (see fig. 6). Standards for Internal Control in the  Federal Government provides the overall framework for establishing  and maintaining internal control in federal programs. In addition, the  Committee of Sponsoring Organizations of the Treadway Commission  (COSO) has issued an internal control framework that, according to  COSO, has gained broad acceptance and is widely used around the  world. Both frameworks include the five components of internal control:  control environment, risk assessment, control activities, information and  communication, and monitoring. Internal control generally serves as a first   In  line of defense in safeguarding assets, such as cash and vouchers.implementing internal control standards, management is responsible for  developing the detailed policies, procedures, and practices to fit the  entity’s operations and to ensure they are built into and are an integral  part of operations.
section_title: USAID Has Developed Processes for Awarding EFSP Funds, but It Lacks Guidance for Staff on Modifying Awards and for Partners on Responding to Changing Market Conditions
paragraphs: USAID has developed processes for awarding cash-based food  assistance grants; however, it lacks formal internal guidance for its  process to approve award modifications and provides no guidance for  partners on responding to changing market conditions that might warrant  an award modification. USAID awards new cash-based food assistance  grants through either a competitive proposal review or an expedited  noncompetitive process. We reviewed 22 proposals for new cash-based  food assistance projects that were awarded and active as of June 1,  2014; we found that USAID made 13 of these awards through its  competitive process, 7 through an abbreviated noncompetitive review,  and 2 under authorities allowing an expedited emergency response.  According to USAID officials, USAID follows a similar process in  reviewing requests to modify ongoing awards, which implementing  partners may propose for a variety of reasons, such as an increase in the  number of beneficiaries within areas covered by an award or a delay in  completing cash distributions. For our four case study countries, we  reviewed 13 grant agreements made from January 2012 to June 2014  that had 41 modifications during that period, including 20 cost  modifications that resulted in the total funding amount for the 13 grants  increasing from about $91 million to about $626 million, which is about a  591 percent increase. According to USAID, its draft internal guidance for  modifying awards is under review and will be incorporated into formal  guidance in the future, but it could not provide a time frame for completing  that process. In the absence of formal guidance on that process, USAID  cannot hold its staff and its partners accountable for taking all necessary  steps to justify and document the modification of awards. Additionally, we  found that although USAID requires that partners implementing cash- based food assistance monitor market conditions, USAID does not  provide clear guidance about how to respond when market conditions  change—for example, when and how partners might adjust levels of  assistance that beneficiaries receive. Without such guidance, USAID runs  the risk of beneficiaries’ benefits being eroded by price increases or, if  prices decrease, of partners’ using scarce project funding inefficiently.
subsections: section_title: USAID’s Process for Awarding New Cash- Based Food Assistance Projects Was Consistent with Its Policies and Procedures
subsections: section_title: USAID Program Guidance Outlines the EFSP Competitive Proposal Review Process and Noncompetitive Exceptions
paragraphs: USAID outlines its process for reviewing and deciding to fund proposals  for cash-based food assistance projects in the Annual Program Statement  (APS) for International Emergency Food Assistance (see fig. 7).  According to USAID, the APS functions as guidance on cash-based  programming by describing design and evaluation criteria for selecting  project proposals and explaining the basic steps in the proposal review  process. The APS also serves as a primary source of information for  prospective applicants that apply for emergency food assistance awards  using EFSP resources. While Title II in-kind food aid resources represent  the majority of USAID’s emergency food assistance funding, USAID’s  policy is that EFSP resources may be used when one or more of the  following conditions apply:  1.  Local and regional procurement, cash-based food assistance, or both  are deemed more appropriate than in-kind food aid because of market  conditions.  2.  Title II in-kind food aid cannot arrive in a sufficiently timely manner  through the regular ordering process or through the use of  prepositioned stocks.  3.  Significantly more beneficiaries can be served through the  programming of local and regional procurement or cash-based food  assistance.
The competitive proposal review process outlined in the APS includes at  least three documented steps intended to ensure that the proposal is  aligned with U.S. foreign assistance objectives and is technically sound:  1.  Partners submit a brief concept paper. Partners initiate the review  process by submitting a brief concept paper that describes the chosen  program approach, and the relevant justification. Generally, an official  at USAID headquarters and an FFP officer from the field review the  concept paper to determine if the project is aligned with FFP’s  objectives and if the needed resources are available. Partners may  change the proposed scope, assistance delivery mechanism—cash,  vouchers, or commodities—or funding level based on FFP’s feedback.  2.  Partners submit a full proposal addressing APS design criteria. If FFP  decides to move forward with a proposed concept paper, it will invite  partners to submit a proposal that addresses the design criteria  outlined in the APS.  3.  FFP assembles a technical evaluation committee to review and score  the proposal. The committee includes at least two USAID officials,  who review and score the content of the proposal to determine  whether it sufficiently addresses the design criteria in the APS.
The APS describes four categories of project design and evaluation  criteria: program justification; program design and description;  management and logistics; and past performance. Applicants must justify  their chosen delivery mechanism based on one or more of the following  criteria: appropriateness, timeliness, or cost-effectiveness. The program  design and description criteria cover several project design areas,  including three identified as good practices in cash-based programming:  (1) assessing beneficiary needs, (2) market analysis and impact, and (3)  coordination with other entities. Management and logistics criteria  establish the capabilities of the applicant to carry out the proposed  program based on staffing, infrastructure, and logistical arrangements.  Past performance criteria include accomplishments, quality of  performance, and demonstrated expertise in implementing programs  similar to the one proposed.
After its review, the technical evaluation committee may submit an issues  letter to the partner, indicating areas where the proposal must be  improved to receive a recommendation for funding. The partner then has  the opportunity to address these issues and submit additional application  information. This iterative process allows for dialog between FFP and the  partner about how the project design can be improved. Once the  committee is satisfied that the proposal meets the design criteria, it will  recommend the proposal for funding.
There are exceptions to the competitive proposal review process,  according to the APS and related guidance in USAID’s Automated  Directives System (ADS).
According to the APS, USAID reserves the  right to make awards to public international organizations (PIO) under  different terms and conditions than those that apply to NGOs, including  different documentation requirements prior to an award or included in an  award. For example, when super typhoon Haiyan struck the Philippines in  November 2013, FFP funded a WFP emergency operation using an  abbreviated process for noncompetitive PIO grants. FFP officials said that  this kind of abbreviated process for noncompetitive PIO grants allows for  rapid emergency response. WFP, which is a PIO, receives a significant  portion of the EFSP funding for cash and voucher programs—about 80  percent in fiscal year 2014. USAID maintains a list of PIOs, and ranks  major PIOs like WFP and FAO as Category One partners based on the  agency’s experience with these organizations and a determination as to  their level of responsibility.predetermined the general suitability of a PIO, it can then review the  PIO’s funding appeal document rather than a concept paper or proposal  specifically written in response to the APS. Nevertheless, according to  FFP officials, in considering funding appeals from PIOs, they review basic  project aspects covered under the APS, such as planned scope, logistics,  and targeting of beneficiaries. To document this process with the PIOs,  FFP officials said they generally issue an action memo justifying the  decision to review the proposal outside the competitive APS process and  its evaluation of the PIO’s proposed project.
USAID officials stated that when it has  Additionally, in accordance with the ADS and USAID policy, the Director  of FFP may issue a determination of noncompetition for any NGO  implementing partner on a case-by-case or disaster-by-disaster basis.  This ADS policy, which applies to awards to carry out International  Disaster Assistance under the Foreign Assistance Act or emergency  assistance under the Food for Peace Act, states that FFP may issue such  exceptions when it deems competition impracticable. In our case study  selection, for example, FFP issued a determination of noncompetition  covering Syria for fiscal year 2014; the determination stated that full  competition would not allow FFP to respond in a timely manner and that  few partners had the capacity to access certain areas in Syria. According  to FFP officials, USAID staff review a partner’s program appeals  documentation before deciding to fund a program noncompetitively.
According to USAID officials, the exceptions to the competitive proposal  review process for EFSP grant awards enable FFP to respond to some  crises more quickly, particularly when it is aware of partners that possess  sufficient capacity for the project. For example, PIOs like WFP may  already have an appeal for funding that satisfies EFSP design criteria.  According to FFP officials, they can review a multilateral appeal in as little  as a few days, and the APS design criteria continue to serve as guidance  when they consider appeals from PIOs.
section_title: USAID Followed Its EFSP Competitive Proposal Review Process, or Used an Exception, in All 22 Cases We Reviewed
paragraphs: We found that FFP followed its APS process for reviewing and deciding to  fund competitive cash-based EFSP project proposals, or used an allowed  noncompetitive exception, in all 22 cases that we reviewed. The  proposals we selected for review were all new cash-based projects that  were awarded and active as of June 1, 2014. The 22 awards totaled  $126.3 million; covered 14 countries in Africa, Asia, and the Middle East;  and included 11 awards to NGOs and 11 awards to one PIO.
Of the 22 proposals we reviewed, we determined that USAID completed  each required step in the APS competitive review process for 13. remaining 9 proposals we reviewed, we found that USAID made 7 awards  through an abbreviated noncompetitive review, and 2 awards under  authorities allowing an expedited emergency response.
Of the 13 proposals, 9 were subject to the three steps in the APS review process, and 4  were subject to each step except for the submission of a concept paper. USAID issued an  amendment to the APS waiving the concept paper requirement for proposals for projects  in Yemen during fiscal year 2013.
section_title: USAID Lacks Internal Formal Guidance for Modifying Awards and Lacks Any Guidance to Partners on Responding to Market Conditions
subsections: section_title: Modifications Can Greatly Increase Funding over Original Award Amounts, but USAID Has No Formal Guidance on Its Process for Modifying Awards
paragraphs: According to USAID officials, two main types of modifications may be  made to a grant agreement—no-cost modifications and cost  modifications. For our four case study countries, we reviewed 13 EFSP  grant agreements from January 2012 to June 2014 that had a total of 41  modifications.
No-cost modifications. Eleven of the 13 grant agreements had a total of  21 no-cost modifications. Some no-cost modifications extended the life of  a program without additional cost, for instance when a project  experienced unavoidable delays in completing cash or voucher  distributions. Other no-cost modifications were largely due to  administrative changes such as revising sections of the original  agreement, or adding changes made to the standard provisions that  USAID incorporates into grant agreements.
Cost modifications. Eight of the 13 grant agreements had a total of 20  cost modifications that increased funding for the 13 awards from an initial  total of about $91 million to about $626 million, approximately a 591  percent increase. Ten of these cost modifications were made to 1 award,  the Syria regional award, and totaled about $441 million over the original  grant of $8 million (see fig. 8). The Syria regional award modifications  amounted to about 82 percent of the total increase in funding for the cost  modifications we reviewed.
Fourteen of the 20 cost modifications we reviewed were made to awards  to PIOs, amounting to about $502 million, or 94 percent of the total  increase in funding for the 20 cost modifications we reviewed. Another 6  cost modifications we reviewed were made to awards to NGOs,  amounting to about $34 million. Cost modifications in the cases we  reviewed were approved mainly for two reasons—to extend the duration  of the project and to increase the number of beneficiaries being assisted.  Fifteen of the 20 cost modifications extended the project by 2 to 12  months, while at least 6 modifications were due to increased number of  beneficiaries. One cost modification extended the project by 6 months  and added about $10 million in unconditional cash transfers to a project  that had been implementing distributions of locally and regionally  procured food. This award is an example of a modification that changed  an existing assistance delivery mechanism or added a new one.
Although the APS for International Emergency Food Assistance outlines  the review process for new award proposals, neither the current 2013  APS nor the two previous versions provide clear guidance on the process  for submission, review, and approval of modifications to existing   According to USAID officials, USAID generally follows the  awards.process for new award proposals when reviewing proposals for cost  modifications, although there is no formal guidance to inform modification  decisions. USAID’s procedures with regard to reviewing award  modifications have been largely informal. According to USAID officials,  documentation in each modification file may lack uniformity because of  different preferences of agreement officer representatives (AOR) or their  teams. For instance, the title of key documents may differ, such as the  program justification which may be referred to as a concept note,  proposal, program description, program narrative, or application. AORs  may refer to draft procedural guidance on modifications, according to  USAID officials, who also said a recently established Grants Management  Services Team, housed within FFP’s Policy and Technical Division, is  reviewing the draft procedures as part of a broader effort to improve  guidelines for AORs.this process, and it is unclear when this enhanced guidance will be  finalized. Standards for Internal Control in the Federal Government calls  for policies, procedures, techniques, and mechanisms that enforce  management’s directives. Without formal guidance to establish the  policies and procedures for modifying awards, USAID staff and its  partners lack assurance as to whether they are taking all necessary steps  to justify and adequately document the modification of awards.
section_title: Changes in Market Conditions May Warrant Adjustments to Cash-Based Food Assistance Projects, but USAID Provides No Guidance on This to Partners
paragraphs: USAID requires implementing partners of EFSP projects to collect and  report market prices of key commodities during the implementation of the  assistance. This is because increases in prices of key commodities may  erode beneficiaries’ benefits, whereas decreases in prices of key  commodities may justify a reduction in the amount of cash distributed  while maintaining the amount of food beneficiaries can purchase. We  found significant changes in the price of key staple commodities in  selected markets in Niger and Somalia but not in Jordan and Kenya. We  also found that USAID’s implementing partners responded differently to  changing market conditions, and that USAID had not provided partners  with clear guidance on when and how to modify cash-based food  assistance projects in response to changing market conditions. In  contrast, WFP’s Cash and Vouchers Manual suggests that WFP’s country  offices consider setting cutoff limits for maximum acceptable price  inflation and have a contingency exit plan to respond to the situation  when acceptable price inflation limits are exceeded.
During Cash-Based Food Assistance Projects, Prices of Some Key  Staple Commodities Changed Significantly in Selected Markets in  Two of Our Four Case Study Countries  We analyzed data on the prices of key staple commodities in selected  markets in our case study countries from fiscal years 2010 through 2014.  We found that the prices of key cereal commodities in Niger and Somalia  changed significantly without corresponding adjustments to all  implementing partners’ cash-based projects. We did not find similar food  price changes in Jordan and Kenya.
Niger. In Ouallam, we found that the prices of key cereal commodities  rose an average of around 25 percent from April to September 2012 (see  fig. 9), a large increase compared with historical price trends. We  estimated that the increases in the prices of these cereals may have  increased the cost of the beneficiaries’ food basket by roughly 20 percent.  During this period, USAID’s implementing partner distributed 20,000 West  African CFA francs per household (around $38) to beneficiaries each  month from May through September 2012.beneficiaries was not changed during the period of significant price  increases. USAID’s implementing partner stated that its staff found that  regional food stocks remained sufficient in project areas and that  beneficiaries were able to purchase the food they needed. In addition,  USAID’s implementing partner stated that the government of Niger and  humanitarian agencies had previously agreed on the amount to be  distributed to beneficiaries, and the partner did not want to unilaterally  change that amount.
In Birnin Gaoure, we found that the price of millet, Niger’s key staple  commodity, increased 20 percent from March to September 2013, a large  increase compared with historical price trends. An implementing  partner’s Niger officials acknowledged the steep increases in cereal  prices in 2013 and attributed them to a bad harvest and increased  demand from Nigeria. During this period, the implementing partner  increased the transfer rate from 25,000 West African CFA francs per  household (around $50) to 32,500 West African CFA francs per  household (around $65) to beneficiaries each month in May 2013  because of the increase in prices. The partner also monitored both the  local market price for commodities and the cost of distributing these  commodities. The implementing partner then considered switching from  distributing cash to in-kind food distributions when the price of  commodities that beneficiaries purchased in local markets neared the  cost of in-kind distributions. The implementing partner’s Niger officials  reported that they switched from cash to in-kind distributions in certain  geographic areas but not in other areas where the prices of staple  commodities did not reach the cost of in-kind distributions.
Somalia. In Baydhaba, we found that the price of key cereal commodities  increased significantly in mid-2011 (see fig. 10). By September 2011,  the UN had declared famine in seven regions in Somalia, including  Baydhaba. In November 2011, USAID signed a grant agreement with its  implementing partner to fund a cash-for-work project. By that time,  however, the prices of these key cereal commodities had declined from  their peaks earlier in 2011. USAID’s implementing partner provided $72  per household each month during the period when prices of these key  cereal commodities declined. The partner then increased the amount to  $96 per household each month in June 2013. Our analysis also found  that the price of red sorghum and white maize increased significantly in  2014 (also shown in fig. 10). From April to July 2014, the price of red  sorghum increased by 77 percent and the price of white maize by 37  percent, large increases compared with historical price trends. However,  the implementing partner did not adjust the transfer rate during this  period. The implementing partner cautioned that adjusting the transfer  rate should be done in context of the wage rate in the labor market, the  general volatility of commodity markets in Somalia, and food being only a  part of the beneficiaries’ expenditure basket. The implementing partner  stated that starting in late February 2015 it would be testing a new  methodology intended to establish the transfer rate at the subregional  level based on the cost of commodities, the wage rate in the labor market,  the available budget, and an assessment of the implications of adjusting  the transfer rate by examining short- and long-term trends. Once  established, the transfer rate would remain for approximately 2 to 3  months, comprising a round of distributions.
Jordan and Kenya. In Jordan, we analyzed data from Jordan’s  Department of Statistics and found that the price of food in Jordan did not  change significantly after an implementing partner started its project in  July 2012. In Kenya, the implementing partner established the transfer  rate based on the value of the standard food basket; it reviewed prices  every month and would change transfer amounts only in response to  price fluctuations, in either direction, of more than 10 percent. In Taita  Taveta, the site we visited in Kenya, the implementing partner informed  us that the transfer value had not been adjusted since June 2013  because retail food prices had not changed more than 10 percent.
USAID Does Not Provide Guidance to Partners on When and How to  Modify Programs in Response to Changing Market Conditions  According to USAID officials, USAID does not have a standard for  identifying significant price changes, since the definition of significance is  specific to each country and region. In addition, we did not find guidance  addressing modifications in response to changing market conditions in  the APS for International Emergency Food Assistance. This lack of  guidance has resulted in inconsistent responses to changing market  conditions among different cash and voucher projects funded by USAID.  For example, an implementing partner in Kenya predetermined, as part of  its project design, when adjustments to cash transfer amounts would be  triggered by food price changes, while an implementing partner whose  project we reviewed in Niger relied on an ad hoc response. The  implementing partner in Kenya established the cash and voucher transfer  rate based on the value of the standard food basket; it reviewed prices  every month but would change cash and voucher transfer amounts only  in response to price fluctuations, in either direction, of more than 10  percent.
Without clear guidance about when and how implementing partners  should modify cash-based food assistance projects in response to  changing market conditions, USAID runs the risk of beneficiaries’ benefits  being eroded by price increases or inefficient use of scarce project  funding when prices decrease.
section_title: USAID’s Partners Had Generally Implemented Financial Controls in Projects We Reviewed; We Found Weaknesses in Risk Planning, Implementation, and Guidance
paragraphs: USAID relies on its implementing partners to implement financial  oversight of EFSP projects, but it does not require them to conduct  comprehensive risk assessments to plan financial oversight activities— two key components of an internal control framework (see sidebar)—and  provides little or no guidance to partners and its own staff on these two  components. For case study projects we reviewed in four countries, we  found that neither USAID nor its implementing partners conducted  comprehensive risk assessments that address financial vulnerabilities  that may affect cash-based food assistance projects, such as  counterfeiting, diversion, and losses. Lacking comprehensive risk  assessments of its projects, USAID staff would be hampered in  developing financial oversight plans to help ensure that partners are  implementing the appropriate controls, including financial controls over  cash and vouchers to mitigate fraud and misuse of EFSP funds. We also  found that USAID’s partners had generally implemented financial controls  over cash and voucher distributions but the partners’ financial oversight  guidance had weaknesses. Because of the limitations in their guidance,  partners may neglect to implement appropriate controls in areas that are  most vulnerable to fraud, diversion, and misuse of EFSP funding. In  addition, we found that USAID’s guidance to partners on financial control  activities is limited. For example, USAID lacks guidance to aid  implementing partners in estimating and reporting losses. With regard to  USAID’s oversight of its partners, in the projects we reviewed, we found  that USAID staff were challenged by limited resources and access issues  in high-risk areas. For example, USAID had two staff members in the field  to oversee its Syria regional cash-based projects spread over five  countries that had received approximately $450 million in EFSP funding  from July 2012 through December 2014. Furthermore, USAID has  provided limited guidance to its field staff for overseeing financial controls  put in place by implementing partners.
subsections: section_title: Neither USAID nor Its Implementing Partners Conducted Comprehensive Risk Assessments of the EFSP Projects We Reviewed
subsections: section_title: Though USAID Missions Conduct Country Risk Assessments, These Do Not Address Risks Specific to Cash-Based Food Assistance
paragraphs: USAID officials said that they conduct a risk assessment for all USAID’s  programs within a country and not separate risk assessments for EFSP  projects. According to USAID, its country-based risk assessments focus  primarily on the risks that U.S. government funds may be used for  terrorist activities and on the security threat levels that could affect aid  workers and beneficiaries; these risk assessments do not address  financial vulnerabilities that may affect cash-based food assistance  projects, such as counterfeiting, diversion, and losses. A USAID official  provided us with internal EFSP guidance to staff on the grant proposal  and award process stating that an award would not be delayed if a risk- based assessment has not been conducted. For countries with ongoing  conflicts and civil unrest, such as Somalia, USAID said that it performs a  risk-based assessment for all of its program funding. USAID said that  most of these assessments are sensitive and primarily focus on security  risks. For example, in Niger, FFP’s 2014 risk analysis of its over $75  million country portfolio, including Title II and EFSP, identified such risk  factors as the distance to the project sites and security threats but  contained no assessment of likely financial risks.
section_title: USAID Partners Did Not Conduct Comprehensive Risk Assessments of Their EFSP Projects
paragraphs: USAID’s 2013 APS for International Emergency Food Assistance requires  EFSP implementing partners to indicate the controls in place to prevent  diversion of cash, counterfeiting of food vouchers, and diversion of food  voucher reimbursement funds. According to USAID officials, its partners  have established records of effective performance in implementing cash  and voucher projects and they understand the context of operating in  these high-risk environments. As a result, these officials told us, USAID  expects that its partners will conduct comprehensive risk assessments,  including financial risk assessments, and develop appropriate risk  mitigation measures for their cash-based food assistance projects.  However, none of the partners implementing EFSP-funded projects in our  four case study countries had conducted a comprehensive risk  assessment based on their guidance or widely accepted standards during  the period covered by our review. USAID does not require its  implementing partners to develop and submit comprehensive risk  assessments with mitigation plans as part of the initial grant proposals  and award process or as periodic updates, including when grants are  modified.agreements do not contain risk assessments and mitigation plans. In  addition, the implementing partners we reviewed had not consistently  prioritized the identification or the development of financial risks that  address vulnerabilities such as counterfeiting, diversion, and losses.
USAID officials stated that most EFSP grant proposals and  Jordan and Kenya. In fiscal year 2012, USAID’s implementing partner  for EFSP cash and voucher projects that we reviewed in Jordan and  Kenya documented risk assessments and mitigation plans, but these  were not comprehensive. While the 2012 risk assessment and mitigation  plan for Jordan identified financial risks such as counterfeiting and  diversion of vouchers and corruption, it did not address the likelihood,  impact, and seriousness of these risks as required by its guidance. For  example, in discussing the risk of counterfeiting of vouchers in Jordan,  the implementing partner stated in its 2012 document that “Experience  shows that shops are gaining significant business from the voucher  program and hence not willing to jeopardize that by breaking the rules.”  However, during our fieldwork in Jordan in July 2014, we learned that the  implementing partner had discovered that several retail shops had been  involved in fraudulent activities, and after receiving the results of an  independent review, the partner decided not to renew its contracts with  those shops. According to the implementing partner, monitoring of retail  shops is now systematically in place to ensure that retailers respect the  rules in the contract with the partner.
As of December 2014, the risk registers maintained by the implementing  partner for EFSP projects in Jordan and Kenya addressed key elements  of the risk management process including identifying risk categories,  likelihood of occurrence, impact and seriousness, mitigation actions  currently in place, and mitigation actions needed. These registers  described a number of potential risks, including a challenging funding  environment, political interference in the project, increased levels of  insecurity affecting the partner’s ability to reach the most vulnerable, and  lack of specific staff expertise. However, as of December 2014, the risk  registers for Jordan and Kenya did not identify and address financial  risks, such as counterfeiting of vouchers and diversion and losses of cash  and vouchers, which is contrary to the implementing partner’s financial  directive for the use of cash and vouchers. The financial directive states  that assessments should identify risks related to implementing food  assistance programs from a multifunctional perspective, involving offices  such as finance, program, logistics, and security, and that identified  macro risks, such as financial, economic, political, and environmental  risks, along with mitigating actions, shall be included in the country office  operational risk analysis.
Somalia. Although the USAID implementing partner for the cash-for-work  project we reviewed in Somalia conducted a risk assessment and in  November 2011 developed a risk register that includes a number of  potential risks, including potential financial risks, such as the risks of  collusion and diversion of funds by the money vendor and subawardees,  it did not prepare a comprehensive risk register with clear mitigation plans  in accordance with its guidance and the international standards that it had  adopted. This partner’s risk management guidance state that risk  assessment would provide staff and supervising management with a  shared, comprehensive view of the potential risks to the achievement of  objectives, together with a prioritized mitigation action plan, among other  things. However, this partner’s risk register for its cash-for-work project in  Somalia did not identify, for example, counterfeiting of vouchers as a  potential risk. According to the partner, it has developed controls such as  a management tool through which beneficiary vouchers are generated  with unique serial codes, as well as the development of beneficiary  registration with biometrics, such as fingerprinting to address issues  identified in handling vouchers. In addition, the November 2011 cash-for- work risk register, which we received from this partner in November 2014,  had not been updated since May 2012. In January 2013, this partner  developed an operational risk management framework for south and  central Somalia. While the framework included a number of planned  measures to help ensure greater control, it has not been updated to  conform to the partner’s December 2013 guidance on risk management  and to reflect a key change in its payment process for cash distribution.
We determined that the implementing partner in Somalia periodically  prepared a summary of its risk mitigation measures for its donors. The  most recent summary we reviewed, dated November 2014, stated that  the partner was regularly reviewing its activities in Somalia through a set  of risk mitigation measures and was not starting any new activity without  first reviewing risks and mitigation measures. However, the summary  discussed the mitigation measures as stand-alone activities and did not  link them to any identified risks. Moreover, the summary or the risk  register did not prioritize the mitigation measures described based on its  guidance, and the lack of detail left us uncertain as to the extent to which  certain mitigation measures, such as the use of remote sensing and  biometrics technology, were being implemented based on risk  assessment.
Niger. In Niger, we found that the implementing partner of the cash  transfer project we reviewed had guidance for staff on the risk  management process and on developing a risk register; however, this  partner had not conducted a comprehensive risk assessment that took  into account the likelihood, impact, or severity of fraud, diversion, losses,  or theft of cash for the cash transfer project it implemented in 2012. This  implementing partner prepared a security and safety management plan,  which focused on the risks to staff implementing its projects as well as  beneficiaries and project visitors in Niger. During the implementation of  the 6-month project we reviewed, this implementing partner informed us  that one of its employees had stolen $330 in cash intended for project  beneficiaries. The partner reported that the cash had been repaid, the  employee had been fired, and the donor had been notified. According to  the implementing partner, the donor confirmed its satisfaction with the  partner’s handling of the incident. This partner said that, as a result of this  incident, it had strengthened several of the controls that were in place,  including a complaint mechanism, and it had conducted sensitization  training for beneficiaries, communities, and staff, to help ensure that such  incidents did not recur. However, the partner did not subsequently  conduct a risk assessment and develop a risk register before it began  implementing its 2014 EFSP cash and voucher projects in Niger. Figure  11 shows photographs from our site visits to cash transfer and cash-for- work projects in Niger.
section_title: USAID Partners Generally Implemented Financial Controls for Projects We Reviewed, but Their Implementation and Related Guidance Had Certain Weaknesses
subsections: section_title: Partners Generally Implemented Controls over Cash and Paper Voucher Distributions, Though with Certain Weaknesses
paragraphs: We reviewed selected distribution documents for three implementing  partners with projects that began around 2012 in our four case study  countries (Jordan, Kenya, Niger, and Somalia). We examined the  documents for conformance with the partners’ financial oversight  procedures, USAID’s guidance, and relevant provisions of the grant  agreements. Our review found that the three implementing partners had  generally implemented financial controls over their cash and voucher  distribution processes. For example, in Niger, we verified that there were  completed and signed beneficiary payment distribution lists with thumb  prints; field cash payment reconciliation reports that were signed by the  partner, the financial service provider, and the village chief; and payment  reconciliation reports prepared, signed, and stamped by the financial  service provider. Additionally, we determined that these three  implementing partners generally had proper segregation of financial  activities between their finance and program teams.
Nonetheless, in Kenya, our review showed that in some instances,  significant events affecting the cash distribution process were not  explained in the supporting documentation. For example, we found that  an implementing partner’s total number of beneficiary households for a  cash distribution project was different from the total number recorded by  its subawardee. No explanation for this was documented in reports  provided by the implementing partner, nor was an explanation entered  into the partner’s data system. Although the explanation of how this  discrepancy was resolved, according to the implementing partner,  demonstrated that its controls worked effectively, we were unable to verify  this information because the data records and reports we reviewed  contained no explanatory notes.
Additionally, to determine whether the three implementing partners were  in conformance with USAID’s 2011 and 2013 APS and with grant award  requirements, we reviewed key financial information in project reports  from the partners, including their Federal Financial Reports, quarterly  performance reports, and final program reports.most instances the implementing partners had submitted these reports  within the required time frames and that these reports contained the key  reporting elements required by the grant award. However, in some  instances, we were unable to determine whether the quarterly reports  were submitted timely because USAID was unable to provide us with the  dates it received these reports from the implementing partners. According  to USAID officials, USAID does not have a uniform system for recording  the date of receipt for quarterly progress reports and relies on FFP  officers to provide this information; however, individual FFP officers have  different methods for keeping track of the reports and the dates on which  they were received. These various record-keeping methods made it  difficult for USAID to provide us with the information required for us to  determine if the implementing partners had submitted the project reports  on time. quarterly performance reports within 30  days after the end of each quarter, except  when reporting period ends before 45  days from the effective date of the award  or less than 1 month from estimated  completion date of the award and the  award will not be extended; and  This beneficiary of a food assistance project in  Kenya is receiving her benefits in cash at a  bank.
Though all partners generally implemented financial controls over their  cash and paper voucher distributions that we reviewed, we found that the  partner in Somalia faced several challenges in implementing the project  as a whole. The implementing partner put several mitigation actions in  place to improve financial oversight, but we found that weaknesses in  controls still existed. In October 2011, before USAID provided its initial  EFSP funds, the implementing partner received allegations of fraud,  which resulted in its Office of Inspector General (OIG) initiating several  investigations. During the implementation of the project, the OIG  conducted multiple fraud investigations involving subawardees’ and  money vendors’ non- or under-implementation of cash-for-work activities  and money vendors’ violations of contractual terms of disbursement,  including claiming fees for services not rendered. Letters of agreement  with the partner’s subawardees and money vendors stipulated that these  entities should avoid corrupt and fraudulent activities. According to the  implementing partner, its OIG investigated the allegations and concluded  that the financial loss to USAID was approximately $237,000; according  to the partner, it recovered about $188,000, resulting in a total financial  loss of about $49,000 to USAID. However, in one case, the OIG  concluded that because of security restrictions, it was unable to confirm  the financial loss. In addition, two new investigations that began in 2014  involving one of the money vendors were still ongoing as of December  2014, making it premature to conclude whether there was any financial  loss and whether USAID funds were affected.
The implementing partner in Somalia suspended the cash-for-work  project in all locations from May to October 2012 because of the fraud  allegations and investigative findings. During the suspension of the  project, the partner said that it expanded and added other mitigation  measures to help ensure greater controls, such as expanding a call  center in Nairobi to verify payment to beneficiaries and conduct post- distribution surveys. However, many beneficiaries in south central  Somalia, a high-risk area, had unreliable phone connectivity or did not  own phones. This implementing partner also said that it provided  systematic training to its subawardees, including training on fraud  prevention measures and post-distribution assessment. Prior to  December 2014, post-distribution assessments were being done by the  same subawardees who were overseeing the cash-for-work project,  which is not considered good practice according to internal control  standards. For the project we reviewed, the implementing partner  reported that it would prefer to use independent third parties to conduct  the post-distribution assessment where security and access made that  possible but cited accessibility limitations and cost as reasons it had not  done so. According to this implementing partner, as of January 2015, a  third-party monitoring entity had begun a post-distribution assessment for  the current phase of the project in south central Somalia, and the  partner’s field monitors were conducting the post-distribution assessment  in northern Somalia.
section_title: Implementing Partners’ Financial Oversight Guidance Had Weaknesses That Could Hinder Effective Implementation of Controls
paragraphs: Implementing partners in the case study countries we reviewed had  developed some financial oversight guidance for their cash and voucher  projects, but we found gaps in the guidance that could hinder effective  implementation of financial control activities. One implementing partner  developed a financial procedures directive in 2013 that requires, among  other things, risk assessments, reconciliations, and disbursement  controls. For example, the directive required the country office’s finance  officer to reconcile bank accounts used for cash and voucher transfers on  a monthly basis. It also required that undistributed cash and unredeemed  vouchers be reconciled, receipted, and recorded before financial closure  of a project. The directive specified disbursement controls, such as  requirements for a certified and approved distribution plan and two  authorized signatures before payments are released. The directive also  instructed country offices to assess the financial strength of the financial  service provider. However, the directive lacked guidance on how to  estimate and report losses. The implementing partner told us it was in  the process of developing guidance for cash and voucher losses, which it  planned to complete by December 2015.
A second implementing partner that had been implementing USAID’s  cash-based projects since November 2011 and since about 2007 for  other donors had also developed policies and guidance for some key  financial control procedures. For example, it developed policy in  November 2012 and guidelines in April 2013 for cash-based food  assistance projects, as well as guidance on fraud control, sanctions  procedures, and due diligence procedures. The guidelines included  requirements for the implementing partner’s service providers. For  example, the service providers were required to maintain and document  financial records and certification of proper use of funds. However, other  guidance was lacking, including guidance on estimating and reporting  losses. Furthermore, in October 2014, the implementing partner’s  external auditor recommended that the implementing partner should  formalize its policy framework on internal control and design a  mechanism to monitor, assess, and report on the overall effectiveness of  the internal control system to reinforce accountability and transparency.  The external auditor considers such actions fundamental, meaning that  they are imperative to ensure that the implementing partner is not  exposed to high risks.found significant progress in the implementation of the partner’s  enterprise risk management, including formal adoption of a corporate risk  policy and the integration of risk management into the activities of the  field offices.
The auditor also noted that in May 2014, it had  A third implementing partner had been implementing cash and voucher  projects for USAID since the EFSP program began in 2010. It developed  field financial guidance in 2013 that provides standardized policies and  procedures for financial management and accounting in the partner’s field  offices. However, the implementing partner acknowledged that the field  manual does not address financial procedures specifically for voucher  projects. According to this implementing partner’s staff, the country teams  had each designed financial procedures for vouchers with input from its  headquarters. In October 2014, this implementing partner, in conjunction  with a global financial services corporation, developed an E-Transfer  Implementation Guide that covered various processes, tools, and  checklists for assessing the capacity of e-transfer services providers and  procuring e-voucher systems. Further, this implementing partner is in the  process of developing an enterprise risk management framework.
When implementing partners for EFSP projects have gaps in financial  guidance and limitations with regard to the oversight of cash-based food  assistance projects, the partners may not put in place appropriate  controls for areas that are most vulnerable to fraud, diversion, and misuse  of EFSP funding.
section_title: Limited Staff Resources, Security Constraints, and Lack of Guidance Hindered USAID’s Financial Oversight of EFSP Projects
paragraphs: According to USAID officials, Washington-based country backstop  officers (CBO) perform desk reviews of implementing partners’ financial  reports and quarterly and final program reports and share this information  with FFP officers in the field; in addition, both the Washington-based  CBOs and FFP officers in-country conduct field visits. However, we found  that the ability of the CBOs and FFP officers to consistently perform  financial oversight in the field may be constrained by limited staff  resources, security-related travel restrictions and requirements, and a  lack of specific guidance on conducting oversight of cash transfer and  food voucher programs.oversight and a key control to help ensure management’s objectives are  carried out. They allow CBOs and FFP officers to physically verify the  project’s implementation, observe cash disbursements, and conduct  meetings with the beneficiaries of the grant and the staff of the  organizations implementing the grant to determine whether the project is  being implemented in accordance with the grant award. According to the  CBOs and FFP officers, the frequency of field visits for financial oversight  depends on staff availability and security access.
According to the same USAID headquarters official, during the period covered by our  review, a second FFP officer based in Turkey was responsible for oversight of EFSP Syria  regional award projects in that country and Iraq. twice during the past 2 years—once in 2013 and 2014. All four FFP  officers responsible for EFSP grants in our four case study countries  emphasized that they would have liked to have additional staff because of  the importance of conducting site visits to observe operations for which  they had an oversight responsibility.
The often volatile security situations in our four case study countries and  surrounding areas also limited USAID’s ability to perform financial  oversight in the field. FFP officers we spoke with noted that U.S.  government security personnel had restricted travel in certain areas of  their host countries for prolonged periods. For example, the elections in  2013 meant that travel in Kenya was restricted for security reasons during  several months of the pre- and post-election season. Additionally,  following the 2013 Westgate shopping mall attack in Nairobi and other  terrorist incidents around the country, the coastal areas of Kenya were  declared off limits for routine field visits. As a result, at the time of our visit  in the fall of 2014, the FFP officer had not visited the cash-for-work  program for over a year in the coastal areas of Kenya. In Somalia, travel  to and within the country was highly restricted. For the project in Somalia  that we reviewed, USAID relied on the implementing partner to perform  oversight in-country. The implementing partner’s access to certain areas  of the country was sometimes restricted; however, because of security  concerns, the degree of accessibility varied over time. For example, in  September 2014, about 40 percent of the households in Somalia were  inaccessible to the implementing partner, whereas in the first 2 weeks of  February 2015, 27 percent of the households were inaccessible.  Additionally, the implementing partner did not have an independent third- party entity to perform oversight in restricted areas of the country.  However, according to the implementing partner, it uses satellite imagery  and aerial photographs to verify rehabilitation of cash for work activities.  Because of security concerns, FFP staff had not been able to conduct  any site visits in person in Somalia as of October 2014, the time of our  field visit. In addition to access restrictions, routine security requirements  such as armed escorts sometimes made it difficult for USAID staff to  coordinate field visits. For example, in Niger, FFP program staff could not  visit project sites without armed escorts, which can comprise up to 18  soldiers. The armed escorts were required because of security concerns  arising from conflicts in neighboring countries. The coordination and the  cost of the armed escorts, which could reach several hundred dollars per  visit, made it difficult for staff to visit project sites. Faced with travel  restrictions and security requirements, several FFP officers we visited  reported they were overseeing cash and voucher projects in inaccessible  areas indirectly through communication with implementing partners and in  some instances hiring independent third-party oversight entities to make  site visits.
Because of staff limitations and security-imposed constraints, FFP  officers primarily rely on implementing partners’ reports from the field and  regular meetings with them, either in person or by teleconference, to  determine whether a project is being executed as intended. However,  USAID’s guidance to its FFP officers and its implementing partners on  financial oversight and reporting is limited. For example, FFP staff in  Niger stated that they have had insufficient guidance and training on  financial oversight of cash-based food assistance projects. Furthermore,  the FFP officers told us that USAID is not prescriptive in the financial  oversight procedures it expects from its implementing partners.  Additionally, they noted that USAID has not set a quantitative target for  site visits by FFP officers. FFP officers in our four case study countries  told us that they use a risk-based approach to select which sites to visit.  For example, in Kenya, the FFP officer chooses project sites based on  acute need, investment, and risk. In Niger, the FFP officers have a plan  based on a risk assessment to visit projects periodically. Moving forward,  USAID is developing or putting into place several processes to help its  staff conduct financial oversight of EFSP programs. Examples include  developing policy and guidance for financial oversight and reporting and  hiring additional staff in Kenya to focus specifically on overseeing the  Kenya cash and food distribution program. By increasing its in-house staff  capacity, FFP officers hope to increase the number of field visits. USAID  plans to have these processes in place by the end of 2015. Also, realizing  the importance of performing oversight in high-risk areas, USAID recently  awarded a contract to a third party for Somalia that will provide  independent information about the implementation of projects funded by  FFP and Office of Foreign Disaster Assistance, including periodic  physical verification of project activities.
Although USAID has taken steps to address concerns over its financial  oversight of cash and voucher programs, limited staff resources, security  restrictions, and lack of guidance hamper USAID’s ability to identify  problems with cash and voucher distributions. Without systematic  financial oversight of the distribution of cash and voucher activities in the  field, USAID is hampered in providing reasonable assurance that its  EFSP funds are being used for their intended purposes.
section_title: Conclusions
paragraphs: Cash-based food assistance, including the flexible options of delivering  benefits through cash transfers or vouchers, is an important addition to  USAID’s tools for addressing emerging food shortages. Cash and  vouchers can be distributed more quickly than food and provide recipients  with significant dietary diversity, among other advantages. Like its  implementing partners and other major food assistance donors, USAID  has significantly expanded its use of cash-based food assistance over the  past 5 years. However, cash and voucher options present a new set of  policy and financial control challenges that USAID needs to recognize  and address. Cash-based food assistance may be the most appropriate  option in certain situations, but this option requires additional layers of  analysis in terms of decision making, starting with the decision as to  which mechanism for delivering the assistance is best for a given  situation. Cash-based assistance requires the availability of timely and  reliable market information to know when and how modifications to the  project may be warranted in response to changing market conditions. In  addition, cash and vouchers present a very different set of financial  control challenges from overseeing the procurement and distribution of a  physical commodity.
The success of USAID’s use of cash-based interventions depends on  having appropriate mechanisms in place to ensure that grant proposals  are sound, that those partners who are implementing projects have a  good understanding of the underlying market conditions and the flexibility  to make adjustments when prices change dramatically, and that proper  financial controls and oversight are in place. We found that USAID  followed its grant approval process. However, a significant number of  grants we reviewed were modified after their initial approval, often with  large increases in the resources committed. Yet USAID does not have  formal guidance for reviewing and approving these modifications and thus  does not know whether USAID staff are taking all necessary steps to  justify the modification of awards. Efforts to review procedures and  improve formal guidance for modifying awards have lagged behind the  actual implementation of projects, without a time frame for completing  those efforts and when enhanced guidance will be finalized. Moreover,  USAID lacks formal guidance clearly delineating when and how  implementing partners are to modify cash-based food assistance projects  in response to changing market conditions, and thus it runs the risk that  beneficiaries’ benefits may be eroded by significant price increases or  that implementing partners may use scarce project funding inefficiently if  prices decrease.
While USAID relies on its implementing partners to oversee and ensure  the financial integrity of cash-based assistance, the agency does not  provide its partners with essential operational policy guidance on how  they should conduct financial oversight, nor does it have the resources to  monitor the implementing partners’ efforts. As we noted in this report,  several instances of malfeasance have already surfaced in this program.  It is essential that USAID learn from these circumstances and implement  the necessary changes, including ensuring that comprehensive risk  assessments are conducted and that implementing partners are given  sufficient guidance and oversight.
section_title: Recommendations for Executive Action
paragraphs: To strengthen its management of cash-based food assistance projects  and help ensure improved oversight of these projects, we recommend  that the USAID Administrator take the following five actions:  1.  Expedite USAID’s efforts to establish formal guidance for staff  reviewing modifications of cash-based food assistance grant awards.  2.  Develop formal guidance to implementing partners for modifying cash- based food assistance projects in response to changes in market  conditions.  3.  Require implementing partners of cash-based food assistance  projects to conduct comprehensive risk assessments and submit the  results to USAID along with mitigation plans that address financial  vulnerabilities such as counterfeiting, diversion, and losses.  4.  Develop policy and comprehensive guidance for USAID staff and  implementing partners for financial oversight of cash-based food  assistance projects.  5.  Require USAID staff to conduct systematic financial oversight of  USAID’s cash-based food assistance projects in the field.
section_title: Agency Comments
paragraphs: We provided a draft of this product to USAID for comment. USAID  provided written comments on the draft, which are reprinted in appendix  II. USAID also provided technical comments, which we incorporated  throughout our report, as appropriate.
In its written comments, USAID concurred with our recommendations.  USAID agreed that it should formalize guidance for staff reviewing  modifications of cash-based food assistance grant awards and stated that  it is taking steps to do so. USAID also agreed to develop formal guidance  to implementing partners on appropriate adjustments to adapt  programming of cash-based food assistance projects in response to  changing market conditions. In response to our recommendation to  require implementing partners to conduct comprehensive risk  assessments and submit the results to USAID with mitigation plans,  USAID stated that while it expected applicants to address risk and risk  mitigation within its application, it will formalize this requirement. With  regard to our recommendation to develop policy and comprehensive  guidance for USAID staff and implementing partners for financial  oversight of cash-based food assistance, USAID stated that it will work  with its implementing partners to improve financial oversight of cash- based food assistance projects, both through engagement on  implementing partners’ policy, legal frameworks, and guidelines and  through the development of guidance for USAID staff and implementing  partners. Furthermore, to improve FFP officers’ capacity to oversee cash- based food assistance projects, USAID stated that it is developing  training materials and will continue to explore the use of third-party  monitoring contracts where security and access prevent in-person  monitoring.
We are sending copies of this report to appropriate congressional  committees, the Administrator of USAID, and other interested parties. The  report is also available at no charge on the GAO website 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 Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) review the U.S. Agency for International  Development’s (USAID) processes for awarding and modifying cash- based food assistance projects and (2) assess the extent to which USAID  and its implementing partners have implemented financial controls to help  ensure appropriate oversight of such projects.
To address both objectives, we analyzed Emergency Food Security  Program (EFSP) data provided by USAID and its implementing partners,  which include public international organizations (PIO) such as the World  Food Programme (WFP), the United Nations (UN) Food and Agriculture  Organization (FAO), as well as selected nongovernmental organizations  (NGO). In Washington, D.C., we interviewed officials from the Department  of State (State), the U.S. Department of Agriculture (USDA), and USAID.  We also met with officials representing NGOs that were awarded USAID  EFSP grants to serve as implementing partners in carrying out U.S. food  assistance programs overseas or were the subawardees for USAID  grants awarded to the PIOs. In Rome, we met with officials from the U.S.  Mission to the United Nations, FAO, and WFP. We also met with the UN  permanent representatives for three major donors—Canada, the  European Union, and the United Kingdom. We also selected four case  study countries that receive EFSP grants for review—Jordan for the Syria  region, Kenya, Niger, and Somalia—and conducted fieldwork in three of  these countries (Jordan, Kenya, and Niger) where we met with officials  from the U.S. missions, implementing partners, vendors, financial  institutions, and beneficiaries, among others. We selected these four  countries on the basis of several factors including the level of USAID  EFSP funding, the types of modalities and mechanisms used to transfer  the assistance, implementing partners, security concerns and risks, and  logistics and budget constraints. We cannot generalize our findings from  these four countries to the other countries where USAID has funded  cash-based food assistance projects. We interviewed staff from USAID  and its implementing partners in Niger and Jordan, as well as staff based  in Nairobi who had responsibility for oversight of the EFSP-funded  operations in Kenya and Somalia.
To provide context and background, we analyzed data from USAID and  WFP to identify trends in U.S. funding for cash-based food assistance.  These data include approved EFSP awards from USAID and cash and  voucher amount from WFP by year. In addition, we reviewed studies,  evaluations, and other documents on cash-based food assistance—its  benefits and challenges—as well as various tools that USAID and its  implementing partners use to facilitate their determination of the  appropriate assistance delivery mechanism to address a given food  insecurity situation.
To address our first objective regarding USAID’s processes for awarding  and modifying cash-based food assistance projects, we reviewed  USAID’s Annual Program Statements (APS), grant proposals, and  agreements; grant modifications; various directives and guidance,  including guidance on concept notes; evaluation committee reviews; and  scoring of proposals. Specifically, to determine whether USAID followed  the process established in its guidance for reviewing and deciding to fund  project proposals, we reviewed all 22 cash-based projects that were  newly awarded and active as of June 1, 2014, making them subject to the  requirements in the latest APS issued in May 2013. These awards  covered 14 countries in Africa, Asia, and the Middle East; 11 of them  went to nongovernmental organizations, and 11 went to public  international organizations. For these 22 award files, we reviewed FFP’s  files to determine whether it had documented the required program  decision steps outlined in the APS for competitive proposals: the partner’s  concept paper, the partner’s full proposal, and the evaluation committee’s  review. For grants awarded under an expedited noncompetitive review  process, we reviewed the Office of Food for Peace’s (FFP) files to  determine whether they contained the appropriate action memo or memo  of exception to competition. During our analysis, we found two instances  in which there were no action memos or memos of exception to  competition but the awards were justified under authorities in USAID’s  main organization-wide guidance for expediting awards during  emergencies, and we report these as a separate category.
In addition, to determine the types of award modifications and the  reasons for these modifications, we reviewed 21 EFSP grant awards that  were awarded and active as of January 2012 to June 2014 for the four  case study countries. This selection is not generalizable to the universe of  all ESFP awards. A significant portion of FFP resources is approved  through cost modifications, so a further review of these modifications was  done, including numerous modifications for the Syria regional award. To  assess the reliability of the cost modification data, we reviewed and  analyzed funding data on USAID’s modification assistance awards and  found the data to be sufficiently reliable for our purposes. We also  determined from a list prepared by FFP’s independent management  contractor the types of documents (such as the program justification,  action memo, and technical evaluation report) that FFP submitted to the  contractor for the cost modifications we reviewed. We also examined a  version of draft guidance that USAID said it is currently reviewing as part  of an effort to improve, consolidate, and streamline procedures for  processing cost modifications, among other things.
Furthermore, to identify periods of changing market conditions, we  analyzed data on the price of key staple commodities in five selected  markets in our case study countries from fiscal years 2010 through 2014.  These markets were selected as illustrative examples of changes in the  prices of key staple commodities, the effect on beneficiaries near those  markets, and USAID’s implementing partners’ responses, if any. These  markets are not meant to be representative of all other markets in our  case study countries or all other markets near areas served by USAID’s  implementing partners’ projects. We used data on prices from WFP’s  Vulnerability Analysis and Mapping division, FAO’s Food Security and  Nutrition Analysis Unit, and Jordan’s Department of Statistics. To assess  the reliability of these data, we compared these data with data provided  by USAID’s implementing partners, if available, and found the data to be  sufficiently reliable for our purposes. We adapted WFP’s Alert for Price  Spikes methodology to identify significant changes in the prices of key  staple commodities. We reviewed USAID and its implementing partners’  project documents and interviewed implementing partner officials to  assess how USAID’s implementing partners responded to any significant  changes in the prices of key staple commodities. To the extent  information was available, we calculated the effect of significant changes  in the prices of key staple commodities on the cost of the beneficiaries’  food baskets.
To address our second objective regarding the extent to which USAID  and its implementing partners have implemented financial controls to help  ensure appropriate oversight of cash based food assistance projects, we  obtained the grant funding data from the grant award agreements and  compared them with the funding data provided by USAID and determined  that the data were sufficiently reliable for our purposes. To select the  projects in our case study countries, we used a range of criteria, including  the grant award date, type of delivery mechanism, and funding level (see  table 1).
For each project, we selected at least one distribution date that fell within  the period between when the grant was awarded and when the project  was completed. For example, for Jordan, the grant was awarded in July  2012 and ended in December 2014. We selected two paper voucher  distributions, one that occurred in January 2013 for a governorate and  one that occurred in April 2014 for a refugee camp.the areas selected for our review, like those for our case study countries,  are not generalizable to all areas in the selected countries or to the  broader universe of the implementing partners’ operations. We then  assessed for each project selected distribution documentation and for the  grant key reports (quarterly and final financial reports, quarterly  performance reports, and final program reports) against the requirements  listed in relevant grant agreements; USAID Annual Program Statements  for 2011 and 2013; and the implementing partners’ financial policies,  procedures, and guidance in place at the time of the distributions. For  example, in Kenya, we reviewed planned and actual beneficiary payment  distribution lists as well as reconciliation reports prepared by the  implementing partner and its financial service providers in order to  determine whether there were proper authorizations and segregation of  duties. Additionally, we assessed whether USAID’s required reporting of  key reports was completed and submitted to USAID on a timely basis.
GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1  (Washington, D.C.: November 1999). world. It is recognized as a leading framework for designing,  implementing, and conducting internal control and assessing the  effectiveness of internal control. COSO updated its framework in May  2013 to enhance and clarify the framework’s use and application. These  internal control standards and frameworks describe the five components  of internal control—control environment, risk assessment, control  activities, information and communication, and monitoring. To address  our objective, we focused on the control activities and risk assessment  components in order to assess the entities’ financial oversight of cash- based food assistance projects. We did not assess the processes and  procedures against the other internal control components. To determine  the extent to which USAID and its implementing partners conducted  comprehensive risk assessments, we reviewed their risk registers, if  available, and other documents against their guidance and other  standards, such as the international risk management standards  published by the International Organization for Standardization (ISO), a  worldwide federation of national standards bodies (ISO member bodies).  This International Standard (ISO 31000) Risk Management—Principles  and Guidelines provides principles and generic guidelines on risk  management.
We conducted this performance audit from February 2014 to March 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the U.S. Agency for International Development
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Rathi Bose, Carol Bray, Ming  Chen, Tina Cheng, Beryl H. Davis, David Dayton, Martin De Alteriis, Mark  Dowling, Etana Finkler, Fang He, Teresa Abruzzo Heger, Joy Labez,  Dainia Lawes, Kimberly McGatlin, Diane Morris, Valerie Nowak, Barbara  Shields, and Daniel Will made key contributions to this report.
section_title: Related GAO Products
paragraphs: International Food Aid: Better Agency Collaboration Needed to Assess  and Improve Emergency Food Aid Procurement System. GAO-14-22.  Washington, D.C.: March 26, 2014.
International Food Aid: Prepositioning Speeds Delivery of Emergency Aid,  but Additional Monitoring of Time Frames and Costs Is Needed.  GAO-14-277. Washington, D.C.: March 5, 2014.
Global Food Security: USAID Is Improving Coordination but Needs to  Require Systematic Assessments of Country-Level Risks. GAO-13-809.  Washington, D.C.: September 17, 2013. E-supplement GAO-13-815SP.
International Food Assistance: Improved Targeting Would Help Enable  USAID to Reach Vulnerable Groups. GAO-12-862.  Washington, D.C.:  September 24, 2012.
World Food Program: Stronger Controls Needed in High-Risk Areas.  GAO-12-790. Washington, D.C.: September 13, 2012.
International Food Assistance: Funding Development Projects through  the Purchase, Shipment, and Sale of U.S. Commodities Is Inefficient and  Can Cause Adverse Market Impacts. GAO-11-636. Washington, D.C.:  June 23, 2011.
International School Feeding: USDA’s Oversight of the McGovern-Dole  Food for Education Program Needs Improvement. GAO-11-544.  Washington, D.C.: May 19, 2011.
International Food Assistance: Better Nutrition and Quality Control Can  Further Improve U.S. Food Aid. GAO-11-491. Washington, D.C.: May 12,  2011.
International Food Assistance: A U.S. Governmentwide Strategy Could  Accelerate Progress toward Global Food Security. GAO-10-212T.  Washington, D.C.: October 29, 2009.
International Food Assistance: USAID Is Taking Actions to Improve  Monitoring and Evaluation of Nonemergency Food Aid, but Weaknesses  in Planning Could Impede Efforts. GAO-09-980. Washington, D.C.:  September 28, 2009.
International Food Assistance: Local and Regional Procurement Can  Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain  Its Implementation. GAO-09-570. Washington, D.C.: May 29, 2009.
International Food Security: Insufficient Efforts by Host Governments and  Donors Threaten Progress to Halve Hunger in Sub-Saharan Africa by  2015. GAO-08-680. Washington, D.C.: May 29, 2008.
Foreign Assistance: Various Challenges Impede the Efficiency and  Effectiveness of U.S. Food Aid. GAO-07-560. Washington, D.C.: April 13,  2007.