Cuba Democracy Assistance: USAID's Program Is Improved, but State Could Better Monitor Its Implementing Partners
Released: 2013-02-07T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Since 1996, Congress has appropriated $205 million to USAID and State to support democracy assistance for Cuba. Because of Cuban government restrictions, conditions in Cuba pose security risks to the implementing partners—primarily NGOs—and subpartners that provide U.S. assistance.

For this report, GAO (1) identified current assistance, implementing partners, subpartners, and beneficiaries; (2) reviewed USAID’s and State’s efforts to implement the program in accordance with U.S. laws and regulations and to address program risks; and (3) examined USAID’s and State’s monitoring of the use of program funds. This report is a publicly releasable version of a Sensitive But Unclassified Report that GAO issued in December 2012.

section_title: What GAO Found
paragraphs: The U.S. Agency for International Development (USAID) and Department of State (State) provide democracy assistance for Cuba aimed at developing civil society and promoting freedom of information. Typical program beneficiaries include Cuban community leaders, independent journalists, women, youths, and marginalized groups. USAID receives the majority of funding allocated for this assistance, although State has received 32 percent of funding since 2004. In recent years, both USAID and State have provided more funding for program implementation to for-profit and nongovernmental organizations (NGO) with a worldwide or regional focus than to universities and to NGOs that focus only on Cuba. All types of implementing partners, but worldwide or regional organizations in particular, used subpartners to implement program activities under 21 of the 29 awards and contracts that GAO reviewed.

USAID and State legal officials view the Cuba democracy program’s authorizing legislation as allowing the agencies discretion in determining the types of activities that can be funded with program assistance. Agency officials added that the agencies ensure that program activities directly relate to democracy promotion as broadly illustrated in related program legislation. The officials stated that organizations are expected to work with agency program officers to determine what activities are permitted or appropriate. In addition, they said that program partners and subpartners are expected to spend U.S. government funds consistent with U.S. laws, and that requirements in primary award agreements generally flow down to any subpartners.

USAID has improved its performance and financial monitoring of implementing partners’ use of program funds by implementing new policies and hiring contractors to improve monitoring and evaluation and to conduct financial internal controls reviews, but GAO found gaps in State’s financial monitoring. While GAO found some gaps in implementing partners’ performance planning and reporting, both agencies are taking steps to improve performance monitoring. For financial monitoring, USAID performs financial internal controls reviews of its implementing partners with the assistance of an external auditor. Since 2008, USAID has used a risk-based approach to determine the coverage and frequency of the 30 reviews the auditor has conducted, which have identified weaknesses in implementing partners’ financial management, procurement, and internal controls. However, because of resource constraints, State did not perform financial internal controls reviews for more than two-thirds of its implementing partners during fiscal years 2010 through 2012. State procured an external financial auditor in September 2012 that plans to review more than half of State’s implementing partners, and has taken steps toward implementing a risk-based approach for scheduling these reviews. Federal regulations generally require agencies to approve the use of subpartners. GAO found that USAID issued specific guidance in 2011 to its implementing partners on requirements for subpartner approval. While State told GAO it has similar requirements, State’s requirements are not clearly specified in its written guidance. As a result, State was not provided with the information it would have needed to approve at least 91 subawards and subcontracts that were obligated under eight awards.

section_title: What GAO Recommends
paragraphs: GAO is recommending that State take steps to improve its financial monitoring of implementing partners and provide clear guidance for approving subpartners. State concurred with GAO’s recommendations and cited steps they are taking to address them.

section_title: Letter
paragraphs: The U.S. Agency for International Development (USAID) and the  Department of State (State) provide assistance to increase respect for  human rights and fundamental freedoms, strengthen independent Cuban  civil society, and foster greater access to independent information on the  island. Cubans have lived under an authoritarian regime for more than  50 years; in that time, Cubans have faced continuous restrictions in  citizens’ rights to organize, express themselves freely, and participate in  political life without fear of being harassed and repressed by the Cuban  government. Conditions in Cuba pose risks and challenges for the  delivery of program assistance on the island, which is largely provided by  implementing partners (partners) and their subpartners. In fiscal years  1996 through 2011, Congress appropriated $205 million for Cuba  democracy assistance, with about 90 percent of program funding  provided since fiscal year 2004. While USAID has received most of this  funding, State has also received program funding allocations since fiscal  year 2004.

In November 2006 and November 2008, we reported problems with  USAID’s management and oversight of its Cuba program, such as  oversight weaknesses that increased the risk of grantees’ improper use of  grant funds and noncompliance with U.S. laws and regulations. We  made several recommendations to help USAID strengthen its program  management and monitoring, including recommendations to improve the  timeliness of preaward reviews, and to ensure partners develop approved  implementation plans for awards. USAID has reported taking several  steps to address the recommendations. However, security risks and  challenges related to the delivery of program assistance persist.

To respond to your request, this report focuses on USAID’s and State’s  efforts to provide democracy assistance for Cuba. We (1) identified the  types and amounts of assistance that USAID and State have provided, as  well as characteristics of their partners, subpartners, and program  beneficiaries; (2) reviewed USAID’s and State’s efforts to implement the  program in accordance with U.S. laws and regulations and to address  program risks; and (3) examined USAID’s and State’s monitoring of the  use of program funds. This report is a publicly releasable version of a  prior GAO report, issued in December 2012, that USAID and State had  designated Sensitive But Unclassified.  Although the information provided  in this report is more limited in scope, it addresses the same questions  and uses the same overall methodology as the sensitive report.

In conducting this review, we identified all awards and contracts funded  from 1996 to 2012 and analyzed selected characteristics of all 22 USAID  and State partners that received program funding from fiscal years 2007  to 2009 appropriations and were active in fiscal year 2011. These  partners received 29 awards and contracts during that period. We  reviewed relevant U.S. laws and regulations and agency and  departmental policies and procedures, and we interviewed USAID and  State officials regarding program implementation and related risks. We  also analyzed reported activities, assistance delivered, and management  and internal controls for a nonprobability, nongeneralizable sample of  six USAID and State partners and 11 of their subpartners, to assess  performance and financial monitoring and oversight of their awards and  contracts. We selected at least one partner from each of the four USAID  and State bureaus and offices implementing program assistance. The six  selected partners were among the top 15 recipients of program funding  awarded in fiscal years 2007 through 2010 and represented about 60  percent of funding for awards active in fiscal year 2011. These six  partners received 10 USAID and State awards and contracts over the  time period we reviewed—five from USAID and five from State. We  reviewed and analyzed performance and financial documentation and  data and conducted interviews with USAID and State officials and with  representatives of partners and subpartners in our sample. In addition, we  conducted fieldwork in Miami, Florida, where we interviewed  representatives and reviewed documentation at local partners and  subpartners, and at the U.S. Interests Section (USINT) in Havana, Cuba,  where we interviewed U.S. officials and observed activities at post.  Appendix I provides further details on our scope and methodology.

We conducted this performance audit from September 2011 to January  2013 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.
subsections: section_title: Background
subsections: section_title: Challenges Affecting Cuba Democracy Assistance
paragraphs: Conditions in Cuba continue to pose substantial challenges for U.S.  assistance. Cuba is a Communist state that restricts nearly all political  dissent on the island; tactics for suppressing dissent in Cuba include  surveillance, arbitrary arrests, detentions, travel restrictions, exile,  criminal prosecutions, and loss of employment. Furthermore, there is no  free press in Cuba, and independent journalists and activists are  harassed and imprisoned. The Cuban government substantially restricts  and controls the flow of information, limiting access to the Internet, cell  phones,  radio antennas, and other items, and restricting their use  through high costs, punitive laws, and the threat of confiscation.  Moreover, the government routinely jams all external, non-Cuban  broadcasts, including the U.S. government-supported Radio and TV Martí  broadcasts.

The United States, which maintains an embargo on most trade with Cuba,  does not have diplomatic relations with the Cuban government.  Consequently, USAID does not work cooperatively or collaboratively with  Cuban government agencies, as it does in most other countries receiving  U.S. democracy assistance. USAID does not have staff in Cuba, and  State does not have staff dedicated to the Cuba democracy program in  Havana. USAID and State program staff have been unable to obtain  visas to visit Cuba over the past decade, which poses challenges for  program implementation, monitoring, and evaluation. In addition, Cuban  law prohibits citizens from cooperating with U.S. democracy assistance  activities. In December 2009, a subcontractor working for one of USAID’s  partners was arrested in Cuba while delivering computer equipment to  provide Internet access to Jewish communities on the island. He was  subsequently sentenced to 15 years in prison for “acts against the  independence or the territorial integrity of the state.”

section_title: Roles and Responsibilities for Implementing Cuba Democracy Assistance
paragraphs: Several USAID and State bureaus and offices implement Cuba  democracy assistance efforts, including soliciting proposals, competitively  awarding funds, and monitoring program implementation.

The Latin American and Caribbean Bureau (LAC), Office of  Cuban Affairs, is chiefly responsible for implementing Cuba  democracy assistance efforts.

The Management Bureau has various offices that also assist in  overseeing program awards and contracts.

The Office of Transition Initiatives (OTI) oversaw  implementation of a single contract from fiscal years 2009 through  2012. OTI’s Cuba program efforts were envisioned from their  inception to be temporary, as is typically the case with OTI’s  programs, which generally aim to provide short-term assistance.

The Bureau of Democracy, Human Rights, and Labor (DRL) is  responsible for managing and overseeing the majority of State’s  Cuba democracy assistance program activities.

The Bureau of Western Hemisphere Affairs (WHA), including  the U.S. Interests Section in Havana, Cuba, (USINT), also  manages and oversees Cuba program activities.,

The Bureau of Administration assists DRL and WHA in the  financial management and oversight of Cuba democracy  assistance awards.

Reporting on Cuba democracy assistance in 2006, we found that USINT  delivered some assistance to independent groups and individuals in  Cuba, including assistance provided by USAID- and State-funded  awardees. Because of heightened security concerns, USINT no longer  has a role in implementing assistance for USAID and State/DRL partners.  However, USINT continues to provide information on conditions in Cuba,  facilitates and assists with State/WHA training courses, and supports civil  society in Cuba.

Table 1 outlines key USAID and State roles and responsibilities for  providing U.S. democracy assistance for Cuba.

In addition, the National Endowment for Democracy (NED), an  independent, nongovernmental organization, funds programs to promote  democracy in Cuba through both direct congressional appropriations and  with funding that it receives through State/DRL.

Program partners—such as nongovernmental organizations, universities,  and development contractors—and subpartners also have roles and  responsibilities for Cuba democracy program assistance. USAID and  State provide funding for partners through various mechanisms, including  grants and cooperative agreements (together referred to as “awards” in  this report) and contracts. Partners may also award funding to  subpartners to assist them in implementing program efforts. Subpartners  may include consultants, subcontractors, subgrantees, and recipients of  grants under contract.

section_title: USAID and State Focus on Promoting Cuban Civil Society and Access to Information; Most Funding Goes to Worldwide or Regional Partners and Their Subpartners
paragraphs: USAID and State support democracy for Cuba by providing awards and  contracts to partners with objectives related to developing civil society  and promoting freedom of information. USAID receives the majority of  funding allocated for this assistance, although State has received 32  percent of funding since it started taking part in the program in 2004.  Since 2008, USAID and State have awarded more funds to larger  organizations with a worldwide or regional presence than to the other two  categories of typical awardees: universities, and smaller organizations  that focus only on Cuba. Under 21 of the 29 recent awards and contracts  that we reviewed, partners used subpartners to implement program  activities and obligated about 40 percent of the funding associated with  these awards and contracts to subpartners. Worldwide or regional  organizations provided more than 90 percent of the funding provided to  subpartners.
subsections: section_title: Program Focuses on Promoting Civil Society and Access to Information
paragraphs: USAID’s and State’s democracy assistance efforts for Cuba generally  focus on developing an independent civil society and promoting freedom  of information in Cuba. The overall goal and guiding principle of U.S.  democracy assistance for Cuba is to improve the effectiveness of citizens  to participate in activities affecting their lives and to increase access to  information. Efforts to develop Cuban civil society include training in  organizational and community development, leadership, and advocacy.  Related material assistance may include the provision of books,  pamphlets, movies, music, and other materials that promote democratic  values. In addition, efforts to promote freedom of information have  included the following, among other activities:  information technology training for Cuban nationals, ranging from  basic computing to blogging; provision of material assistance.  journalism training;  support for independent publications; and  USAID and State officials noted that in recent years, program efforts have  included a greater focus on information technology, particularly on  supporting independent bloggers and developing social networking  platforms on the island.

Several partners we reviewed received funding to support international  solidarity activities, although agency and partner officials indicated that  the program recently has reduced its focus on off-island activities to foster  support for democracy in Cuba. Activities of this type that State/DRL  funded in fiscal years 2009 through 2011 included the following: an essay contest for Latin American youths related to Cuba Solidarity exhibits and documentaries presented outside Cuba for the purpose  of bringing awareness globally to Cuban human rights issues and civil  society development.

In recent years, USAID and State had few awards or contracts focused  solely on such humanitarian assistance as assistance for political  prisoners and their families, according to agency officials. USINT officials  noted that humanitarian assistance has declined along with a decrease in  the number of political prisoners in Cuba. Officials added that USINT  itself no longer provides any humanitarian assistance on the island.

To broaden reach and impact, Cuba democracy assistance efforts have  expanded beyond a focus on traditional activists to include groups such  as poor and rural communities, religious organizations, small businesses,  and information technology enthusiasts. Typical program beneficiaries  also include Cuban community leaders, independent journalists,  independent bloggers, women, and youths.

Table 2 summarizes information on recent program assistance and target  beneficiaries.

In fiscal years 1996 through 2011, Congress appropriated $205 million for  Cuba democracy assistance, appropriating 87 percent of these funds  since 2004. Increased funding for Cuba democracy assistance was  recommended by the interagency Commission for Assistance to a Free  Cuba, which was established by President George W. Bush in 2003.  Program funding, which peaked in 2008 with appropriations totaling $44.4  million, has ranged between $15 and $20 million per year during fiscal  years 2009 through 2012. For fiscal year 2013, USAID and State reduced  their combined funding request to $15 million, citing operational  challenges to assistance efforts in Cuba.

In fiscal years 1996 through 2011, $138.2 million of Cuba democracy  funds were allocated to USAID and $52.3 million were allocated to State  (see fig. 1).

When the Cuba democracy program began in 1996, USAID was the only  agency involved and USAID/LAC was the only programming bureau.

USAID/LAC has received the largest total amount of program funding  and has continued to receive the largest annual amount, averaging  $12.1 million annually since fiscal year 2004.

USAID/OTI received program funding totaling $14.3 million from the  appropriations for fiscal years 2007 through 2010.

State has received 32 percent of Cuba democracy funding since fiscal  year 2004.

State/DRL has received an average of $5.8 million annually since  fiscal year 2004.

State/WHA has received an average of $1.4 million annually since  fiscal year 2008.

section_title: USAID and State Have Provided Most Recent Awards and Contracts to Worldwide or Regional Organizations
paragraphs: USAID and State have awarded funding for Cuba democracy assistance  to three categories of partners: (1) Cuba-specific nongovernmental  organizations (NGO), (2) worldwide or regional organizations, and (3)  universities.

USAID’s and State’s awards and contracts tended to share certain  characteristics, such as their broad objectives and amounts awarded,  depending on the type of partner.

Objectives. USAID and State awards and contracts to Cuba-specific  NGOs and to worldwide or regional organizations have generally  funded similar types of program activities, such as efforts to provide  training and material assistance on the island. Awards to universities  have tended to have different objectives. In the early years of the  Cuba program, awards to universities funded activities such as  research on how to promote a democratic transition in Cuba and  scholarships to study at universities in the United States. Since the  mid-2000s, after finding that the Cuban government would not provide  exit visas for Cuban students to study in the United States, USAID  and State have awarded funding to universities largely for programs to  provide distance learning training to Cubans on the island or courses  at universities in other Latin American countries.

Amount of award or contract. USAID’s awards and contracts in fiscal  years 1996 through 2012 averaged $1.9 million for Cuba-specific  NGOs, and $2.1 million for worldwide or regional organizations.  State’s awards and contracts averaged $0.8 million for Cuba-specific  NGOs and $0.9 million for worldwide or regional organizations. Both  USAID’s and State’s awards and contracts to universities averaged  $0.8 million.

In fiscal years 1996 through 2012, USAID and State had a combined total  of 111 awards and contracts to 51 partners representing all three types of  organizations (see fig. 2). Many of the awards were concentrated among  certain partners, with 25 of these partners receiving multiple awards from  USAID, State, or both. For example, one partner received a combined 11  awards from USAID and State, more than any other partner, and 10 of  the 51 partners received 67 percent of total funding to partners.

Since fiscal year 2008, regional or worldwide organizations have had  more active USAID and State awards and contracts each year, and have  received more funding, than Cuba-specific NGOs or universities. Prior to  2008, Cuba-specific NGOs had more active USAID awards than the other  categories of recipients in most years. However, the program’s partners  have consistently included worldwide or regional organizations, some of  which have a history of working on Cuba issues (see fig. 3). For example,  for awards that began in fiscal years 1996 through 2007, Cuba-specific  NGOs received 48 percent of award funding, worldwide or regional  organizations received 43 percent, and universities received 9 percent. In  contrast, for awards made since fiscal year 2008, worldwide or regional  organizations received 74 percent of award and contract funding, while  Cuba-specific NGOs received almost 17 percent, and universities  received almost 10 percent. As we previously reported, this greater use of  worldwide or regional organizations, which began in 2008, reflected more  formal requirements for submitting proposals and USAID’s decision to  fund awards and contracts that incorporate capacity building for  subpartners as an important element.

Many partners, and worldwide or regional organizations in particular, use  subpartners to help carry out their Cuba democracy assistance work. We  reviewed 29 recent awards and contracts to determine the extent to which  partners use subpartners to implement program activities. We found that  partners used subpartners under 21 of the 29 awards and contracts,  obligating about 40 percent of the funding under these awards and  contracts to subpartners. On average, partners that used subpartners  under an award or contract had 12 subpartners.

However, the numbers of subpartners under each of the 21 awards  varied:

Four awards had one subpartner.

Seven awards had between two and nine subpartners.

Ten awards and contracts had more than 10 and up to 38  subpartners.

The purposes of subawards and subcontracts also varied greatly. Many  subawards and subcontracts were for discrete activities, such as to  conduct workshops. Other subawards and subcontracts covered an array  of tasks, such as content development and instruction for a distance  learning course or development, training, and support for civil society  networks. Accordingly, subpartners included different types of non-profit  and for-profit organizations as well as individuals who worked as  consultants that provided the skills necessary to implement the varying  activities.

Furthermore, the amount of funding that went to subpartners ranged from  less than $5,000 to several hundred thousand dollars. For six of the 21  awards and contracts with subpartners, the majority of program funding  was obligated to subpartners. In such cases, subpartners generally  performed all or most of the programmatic functions under the overall  award or contract, while the partners’ main functions were to provide  strategic direction of the overall award or contract and to perform  management functions such as reporting to the agency and overseeing  their subpartners.

Worldwide or regional organizations were more likely to use subpartners  than were the other categories of organizations. In total, 93 percent of the  subawards and subcontracts were awarded by worldwide or regional  organizations. Also, on average, worldwide or regional organizations had  12 subpartners for each of their awards or contracts, while Cuba-specific  NGOs had three and universities had five. Correspondingly, five of the six  partners that obligated the majority of their funding to subpartners were  worldwide or regional organizations.

section_title: Agencies Exercise Discretion under Authorizing Legislation in Funding Cuba Program Activities
paragraphs: USAID and State legal officials view the Cuba program’s authorizing  legislation as providing the purposes for which foreign assistance funds  may be used and allowing discretion to determine which program  activities will be funded. The officials stated that they view the types of  activities listed in section 109(a) of the Helms-Burton Act as illustrating,  not limiting, the types of program assistance that the agencies can  provide. Specific authority for Cuba democracy assistance activities was  provided in section 1705 of the Cuban Democracy Act of 1992 and in  section 109(a) of the Helms-Burton Act in 1996. Section 1705  authorizes the donation of food for NGOs and individuals in Cuba; exports  of medicines and medical supplies, instruments, and equipment; and  assistance to appropriate NGOs to support efforts by individuals and  organizations to promote nonviolent democratic change in Cuba. Section  109(a) authorizes assistance and other support that may be provided,  such as published informational matter for independent democratic  groups, humanitarian assistance for victims of political repression and  their families, and support for democratic and human rights groups.

USAID and State legal officials said that the agencies ensure that  program activities directly relate to democracy promotion as broadly  illustrated in related program legislation. For example, the officials noted  that the types of activities that fit within the scope of “democracy  promotion,” as that term has been broadly defined in various foreign  assistance appropriations, would be the types of activities eligible for  funding under section 109(a) of the Helms-Burton Act. They added that,  while the agencies have not compiled a list of activities that will be  approved or not approved for funding under the Cuba program, proposed  or approved activities are set forth in agency congressional notifications  and listed in individual requests for proposals or applications and in award  agreements and contracts. In addition, they said that organizations are  expected to work with agency program officers to determine what  activities are permitted or appropriate, and whether Department of  Treasury and Commerce authorizations, as required, already exist  for  delivery of various types of assistance or whether the organization must  instead apply for a license. Furthermore, they noted that program  partners and subpartners, including subpartners based in other countries,  are expected to spend U.S. government funds consistent with U.S. laws  and that requirements in primary award agreements and contracts  generally flow down to any subpartners.

section_title: USAID Has Improved Its Monitoring of Partners; State’s Monitoring Does Not Ensure Program Funds Are Used as Intended
paragraphs: Since 2008, USAID has worked to improve performance and financial  monitoring of its Cuba program partners. However, we found gaps in  State’s financial monitoring efforts. For performance monitoring, we found  some deficiencies in the performance planning and reporting conducted  by USAID’s and State’s partners in our nongeneralizable sample, but both  agencies are taking steps to improve their performance monitoring. For  financial monitoring, USAID has hired an external auditor to perform  financial internal controls reviews of its partners, and has used a risk- based approach considering criteria such as award value and prior issues  identified to determine the coverage and frequency of the 30 reviews the  auditor has conducted. These reviews have identified financial  management, procurement, and internal controls weaknesses that USAID  has taken steps to address. While State conducted no financial internal  controls reviews for at least two-thirds of its partners between fiscal year  2010 and 2012, State recently hired an external auditor to perform such  reviews starting in fiscal year 2013 and has taken steps to implement a  risk-based approach to prioritize the scheduling of its reviews.  Specifically, State plans to complete reviews for three-quarters of  State/DRL’s partners and none of State/WHA’s partners. In addition, in  accordance with federal regulations, the agencies approve partner  requests to award funding to specific subpartners. In June 2011, USAID  provided specific written guidance to its partners on what USAID requires  for approval of subpartners. State has provided limited written guidance  on approval to some partners, which does not clearly inform partners of  the specific types of information State requires for approval. As a result,  State was not provided with the detailed information that officials told us  would have been required for State to have approved 91 subawards and  subcontracts that were obligated under eight of its recent awards.
subsections: section_title: USAID and State Are Taking Steps to Improve Their Performance Monitoring to Address Weaknesses in Some Partners’ Performance Planning and Reporting
subsections: section_title: USAID Continues to Take Steps to Improve Performance Monitoring; USAID’s Partners’ Had Some Weaknesses in Performance Planning
paragraphs: USAID has taken steps to improve its ability to monitor its Cuba program  partners’ performance, by working with them to improve their  performance planning and reporting. USAID has numerous  requirements for partners’ performance planning and reporting, the key  elements of which are summarized below.

Performance Planning: USAID directs its Cuba program partners to  establish monitoring and evaluation (M/E) plans that include certain  specific characteristics. USAID works with partners to include more  detailed information on indicators in their M/E plans. USAID/LAC also  required its one contractor to perform data quality assessments on its  performance data.

Performance Reporting: USAID requires awardees to submit  progress reports on a quarterly basis and requires contractors to  submit monthly and annual progress reports, among others. USAID  uses information in these performance reports to track the progress of  individual awards and contracts and to track the progress of the  overall Cuba program. According to USAID officials, USAID first  reviews the reporting to compare it against targets set in partners’ M/E  plans. In addition, USAID analyzes and aggregates the information  reported by partners to track performance for USAID’s Cuba program  and to report to State’s Office of U.S. Foreign Assistance Resources  on government-wide performance.

We reviewed the M/E plans and progress reports for the five USAID  awards or contracts in our nongeneralizable sample, which began in fiscal  year 2008 or 2009 (see table 3). We found some weaknesses in the  partners’ M/E plans but found detailed reporting against indicators in the  progress reports we reviewed. For example, our analysis indicates that all  M/E plans we reviewed included clearly defined indicators for program  activities.

However, not all partners specified targets and data collection methods  for each indicator in their M/E plans. Establishing targets for indicators  during the planning stage is important because targets form the standard  against which actual results will be compared and assessed. Specifying  data collection methods for each indicator enables the agency to  determine whether it will be realistic for the partner to measure  performance for that indicator in a timely manner. One partner included  no information on data collection methods in their M/E plan, while another  partner only included general information on their planned data collection  methods, such as by stating that the data would be collected by  subpartners.

Based on review of the partners’ progress reports, we found that all  partners in our sample reported to USAID on progress through  quantitative updates against each indicator, allowing USAID to gauge the  specific progress made during each reporting period. One partner also  reported progress for each individual subpartner, including by reporting  the number of each subpartner’s beneficiaries disaggregated by target  group. Partners’ progress reports also provided narrative information  describing program activities, challenges encountered, and planned  activities for the next reporting period.

Although we found some gaps in these partners’ performance planning,  USAID/LAC has been working to improve the quality of performance  information that it receives from its partners, with a particular emphasis  since 2010 on improving their M/E plans. To improve M/E plans and  partners’ reporting based on those plans, in 2010, according to USAID,  USAID/LAC conducted in-depth assessments of each of its partners’ M/E  plans to determine whether they included indicator tracking tables,  definitions of indicators, data collection responsibilities, data quality  limitations, and other key information. Also, in September 2010,  USAID/LAC hired an M/E contractor to work with each of its partners to  further improve and standardize their performance management systems.  The M/E contractor has worked with partners to identify and track the  most appropriate indicators, including any applicable standardized  indicators that USAID/LAC can aggregate across the partners to  determine its own overall progress. In 2011, this M/E contractor also  provided training to each partner and helped them to improve their M/E  plans, for example by specifying quarterly targets and data collection  plans for each indicator. According to M/E contractor representatives,  partners’ performance planning has improved, although additional  improvement is needed in the quality of some partners’ data. In fiscal year  2013, the M/E contractor plans to perform data quality audits of the  partners.

State has also made some recent improvements to performance  monitoring of its Cuba program, in the areas of both performance  planning and reporting. State’s requirements for performance planning  and reporting include:

Performance Planning: State/DRL and State/WHA have provided  different requirements for prospective partners regarding elements of  M/E plans.

State/DRL. In 2010, State/DRL increased the level of  requirements for prospective partners’ M/E plans through the  request for proposal (RFP) it issued that year. Previously,  State/DRL required that prospective partners submit an M/E plan  but did not specify characteristics that the M/E plan should  include. The RFP issued in 2010 specified that M/E plans should  include a baseline and target for each indicator and data collection  methods and sources, among other characteristics. In addition,  the RFP referenced M/E guidance available on State/DRL’s  website that included more details on how to develop an effective  M/E plan.

State/WHA. For the State/WHA award in our sample, the RFP  issued in fiscal year 2010 required the prospective partner to  submit an M/E plan outlining performance indicators, sources and  means for verification, risks and assumptions for goals and  objectives, and expected results and activities. For WHA’s most  recent RFPs issued in fiscal year 2012, State/WHA also included  additional guidance for prospective partners’ M/E plans, for  example, including by defining indicators and providing a sample  M/E plan. In addition, State/WHA further clarified that all indicators  in M/E plans must include measurable, numerical targets.

Performance Reporting: Both State bureaus require their partners to  submit quarterly progress reports. According to State/DRL and  State/WHA officials, they review partners’ quarterly reports against the  partners’ planned performance to confirm that the awards are making  progress toward established targets and that activities align with the  award’s objectives. State officials then analyze the quarterly  progress reports to aggregate progress for each of its bureaus with  USAID’s progress to be able to report government-wide performance  for the Cuba democracy program to State’s Office of U.S. Foreign  Assistance Resources.

State’s partners that we reviewed ranged in the amount and kind of detail  they included in their M/E plans as well as in their progress reports. For  the State awards in our sample, we found that State/WHA’s partner had  the most clearly defined M/E plan (see table 4). This partner’s M/E plan  included specific and clearly defined indicators, targets against which the  partner could measure its performance, and clear plans for data  collection. For the four State/DRL awards, the partners included  indicators in their M/E plans but did not define them.

We also found that one partner with three State/DRL awards did not set  clear targets for a number of its indicators. In addition, two partners  identified some data collection methods in their M/E plans, but did not  clearly identify which methods would be used to collect data for each  individual indicator.

We also found that, for State/WHA’s award, progress reports included  detailed reporting against each indicator, as well as additional qualitative  and quantitative information on overall progress including survey results  and statistics. On the other hand, reporting for the State/DRL awards  lacked such detail. For example, for one State/DRL award, the partner  tracked its performance in quarterly reports for only 3 of the more than 10  indicators in its M/E plan. For three other awards, the partner did not  aggregate or track performance against any specific indicators in their  progress reports. While not reporting on progress against specific  indicators, these partners generally reported anecdotally on the topics  covered in the indicators or scattered some performance data throughout  their reports.

In September 2012, State/DRL awarded a contract to a firm specializing  in M/E, which could address such gaps in its partners’ performance  planning and reporting. In the area of performance planning, State/DRL  has directed the M/E contractor to provide training and technical  assistance to its partners to improve their M/E plans, such as to ensure  they include information on data collection methods. In addition,  State/DRL directed the M/E contractor to develop indicators for all  State/DRL partners to report on that meet or surpass data quality  standards. This should allow State/DRL to more easily aggregate  information on the overall performance of its Cuba program partners.

The partners in our sample had various policies, procedures, and  mechanisms in place for monitoring subpartner performance, which they  compiled information on to report to the agencies. We found that  partners generally required subpartners to report on their activities  quarterly or monthly, and at the end of a subaward or subcontract. Some  partners also required subpartners to submit trip reports after any travel to  Cuba. Other monitoring practices cited by partners included site visits to  subpartners and frequent communication via phone, email, or in-person.

Because of security concerns and limited on-site monitoring in Cuba,  partners and subpartners use a variety of methods to verify the delivery of  assistance to Cuban beneficiaries. Representatives from USAID’s M/E  contractor indicated that partners have had difficulty collecting and  reporting data because of Cuban beneficiaries’ reluctance to maintain and  provide specific information in writing (e.g., timesheets, attendance  sheets, or other documents naming beneficiaries). However, the M/E  contractor has found that partners and subpartners often communicate  with beneficiaries though various means. Similarly, according to  representatives of partners and subpartners we interviewed, some  delivery verification methods they used included the following: having future travelers ask beneficiaries how they used assistance observing beneficiaries’ use of assistance through remote or indirect  means—for example, through articles published online that  demonstrate that beneficiaries received training.

Partners generally aggregate information obtained from such methods in  their progress reports to the agencies. However, in certain instances, the  monitoring methods selected have limited subpartners’ ability to track and  report detailed information. For example, one subpartner reported on an  indicator, the number of signatures on petitions, by providing data that it  obtained over the phone (instead of through document reviews that would  prevent double counting of signatures and allow for other data quality  checks). In addition, USAID’s M/E contractor has found cases in which  data could not be transmitted in a timely manner, preventing reporting on  activities in the quarter when they were implemented. As a result, both  the partners and the agencies can have difficulty knowing the exact  numbers and identities of beneficiaries in Cuba.

section_title: USAID Has Improved Financial Monitoring of Partners; State Has Not Consistently Conducted Financial Internal Controls Reviews
subsections: section_title: USAID Has Bolstered Financial Monitoring of Its Partners
paragraphs: Since 2008, USAID has made improvements to financial monitoring of its  Cuba program partners. In April 2008, USAID/LAC hired an external  auditor to perform financial internal controls reviews of its partners to  ensure that they have appropriate internal controls and to review selected  transactions under the program to ensure that they are allowable,  allocable, and reasonable. Since 2008, this auditor has conducted 30  audits across 13 of the 16 partners USAID funded during fiscal years  2007 through 2010. These audits are in addition to audits performed by  USAID’s Management Bureau and its Inspector General. Across its  different auditing entities, USAID has a goal of reviewing each partner  approximately once every 6 months. Other risk-based factors are  considered in the scheduling and sequencing of reviews, such as  preaward reviews, prior audit findings, and period of performance.

Through December 2011, the external auditor had found 50 instances of  unsupported costs, such as insufficient documentation and lack of  authorization, and 15 instances of excessive costs charged to an award  or contract, such as charging incorrect rates or expenses not allocable to  the award or contract. In sum, the external auditor questioned 11 percent  of the charges made to USAID/LAC during the external auditor’s periods  of review. In addition, the external auditor found inadequacies in the  following three main areas: procurement standards at 8 partners, and the financial management systems at 11 partners,  internal controls at 8 partners.

Two of the external auditor’s most common specific findings were that (1)  partners did not properly complete their quarterly financial reports, and (2)  partners did not perform a cost-price analysis before procuring a  subpartner or equipment to ensure that it was procured at a fair price.  Specifically, the external auditor found that four partners did not provide  any documentation of a cost-price analysis. In addition, the auditor found  that another four partners had insufficiently completed or documented  cost-price analyses, either by performing them verbally but not  documenting them or by having unorganized or unexplained  documentation of the cost-price analysis, limiting the external auditor’s  ability to confirm the reasonableness of the costs in question.

As a result of the external auditor’s findings, USAID/LAC has provided  training to partners and, according to USAID/LAC’s external auditor,  partners have made improvements. First, USAID/LAC asked the external  auditor to provide briefings to the Cuba program partners at their  December 2008 and March 2011 quarterly meetings on topics such as  unallowable expenses, internal control standards, and procurement  regulations. In addition, our review of audit reports issued from 2008  through 2011 showed that the external auditor found fewer inadequacies  at some partners that had previously been audited. An official with  USAID’s external auditor who is responsible for these audits noted that  recent reviews have found that the partners have improved their financial  management capacity.

USAID/OTI used other processes to regularly monitor the financial  performance of its partner under the Cuba democracy program.  According to USAID/OTI, USAID/OTI staff worked closely with their Cuba  program partner to plan future expenditures and reviewed documentation  related to individual subpartners to determine each subpartner’s real  costs. In addition, USAID/OTI officials maintained a database that the  partner updated on a weekly basis, allowing USAID/OTI to monitor all  expenditures weekly.

Based on our financial internal controls reviews of the five USAID awards  and contracts in our nongeneralizable sample (see table 5 in appendix  I), we found that partners’ internal controls included (1) policies to  prevent the commingling of U.S. government funds, such as unique  accounting codes to identify awards and separate bank accounts for U.S.  government funds; (2) policy manuals to instruct employees on the proper  use of U.S. government funds received through grants and contracts; and  (3) procedures to segregate incompatible financial duties. We found that  USAID/LAC was overcharged for some overhead and labor expenses by  one of USAID/LAC’s partners in our sample.

State has not consistently conducted ongoing, in-depth financial  monitoring of its Cuba program partners. State’s Bureau of Administration  is responsible for conducting financial internal controls reviews of  State/DRL’s and State/WHA’s partners. However, the Bureau of  Administration has conducted financial internal controls reviews of less  than one-third of partners active since fiscal year 2010. For State/DRL  awards, the Bureau of Administration conducted one review in each fiscal  year for 2010 and 2011 and four in July 2012. It conducted no reviews of  State/WHA partners. According to State officials, the Bureau of  Administration attempts to conduct financial internal controls reviews at  least once during the course of each DRL and WHA award but has not  done so for many of its awards because of staffing turnover and  constraints in the Bureau of Administration.

In September 2012, State/DRL awarded funding to an external auditor to  perform financial internal controls reviews in fiscal year 2013. During this  fiscal year, State intends for the auditor to perform one review of three- quarters of State/DRL’s partners and no reviews of State/WHA’s  partners. State provided documentation to us showing that, in October  2012, State/DRL worked with the external auditor to develop a preliminary  plan to select the ordering of its partners to be reviewed using a risk- based approach that considered criteria such as the value of awards, any  prior financial compliance issues identified, and the partners’ internal  administrative capacity.

We conducted financial internal controls reviews on three partners with  five State awards in our nongeneralizable sample (see table 5 in  appendix I). These three partners had been recently reviewed by  USAID/LAC’s external auditor, because they have also been USAID/LAC  awardees, and had made internal control improvements in response to  the auditor’s findings. Similar to our review of USAID’s partners, we  found that partners had internal control mechanisms in place, including  (1) policies to prevent the commingling of U.S. government funds, (2)  policy manuals to instruct employees on the proper use of U.S.  government funds, and (3) procedures to segregate incompatible financial  duties. However, State has had eight partners with nine State/DRL and  State/WHA awards active in fiscal years 2011 or 2012 that have received  no financial internal controls reviews during the course of their awards,  through either State’s Bureau of Administration or USAID’s external  auditor.

Our review of the six partners in our nongeneralizable sample found that  partners had written policies and procedures for financial monitoring of  their subpartners’ use of program funding. For example, partners had  risk assessment processes to determine the level of monitoring required  for a certain subpartner, depending on that subpartner’s capacity and the  type of subaward or subcontract. In addition, some of the partners  required certain types of subpartners to provide receipts to document 100  percent of expenses.

To test the partners’ application of their financial monitoring policies and  procedures, we conducted reviews of 11 subpartners under the six  partners in our sample. Generally, all partners maintained the necessary  documentation (i.e., receipts, timesheets, authorizations) to support  expenses incurred at the subpartner level. We found that partners  maintained varying levels of documentation on cost-price analyses  performed and that one partner had incomplete documentation for one of  its subpartner’s expenditures.

For three of the five subpartners with fixed-price subcontracts in our  sample, documentation supporting the partners’ cost-price analyses  included (1) the actual amounts paid for similar services to  subpartners on previous awards, (2) price quotes to procure supplies  and equipment from various vendors, or (3) surveys demonstrating  the market value of labor paid for different labor categories to  substantiate that the amounts were within industry standards. For two  of the five subpartners with fixed-price subcontracts within our  sample, the partners documented that they believed the price of the  subcontract to be fair based on the partner’s prior experience.

One subpartner of a USAID/LAC partner submitted its receipts in a  foreign language that staff at the partner could not read and provided  little explanation of the receipts.

section_title: Agencies Have No Direct Relationships with Subpartners except to Approve Their Funding, and State Does Not Provide Clear Guidance on Subpartner Approval Requirements
subsections: section_title: Agencies Have No Direct Relationships with Subpartners Other Than Approving Partner Requests for Their Funding
paragraphs: USAID and State have no direct relationships with their partners’  subpartners. Partners are responsible for all oversight of their subpartners  and for reporting to the agencies any updates and problems related to the  subpartners’ work, such as through any quarterly reports and site visits.  However, the agencies are generally required to approve any partner  requests to award funding to subpartners.

USAID has provided guidance to its Cuba program partners on what is  required for approval of subpartners, both during the preaward phase and  during the course of the award.

Preaward phase. According to USAID officials, subpartners can be  considered pre-approved during the preaward phase if they are  described in award proposals, in accordance with the standard  provisions that are referenced in partners’ awards. USAID officials  indicated that some of USAID’s partners in the past had interpreted  the term “described” to include any reference in a proposal to a  subpartner’s activities, even if the proposal did not specify that the  work would be completed by a subpartner or provide specific  information about the subpartner. As a result, USAID learned— through reviews conducted since May 2009 by its external auditor and  its own subsequent reviews—that some partners had subcontracts  and subawards USAID had not approved. In response, in June 2011,  USAID added guidance to its requests for applications (RFA) on the  type of information that partners must submit in order to receive prior  approval for all types of subpartners. This information includes, for  example, the name of the proposed subpartner, a description of the work to be performed by the subpartner under a detailed, line-item budget. the award,  the total estimated cost to be paid to the subpartner, and  In some cases, USAID accepts this information orally if the partner is  concerned that the leaking of this information could compromise the  security of individual consultants who travel to Cuba. To provide  further clarity to partners on whether or not USAID considers  subpartners as approved during the preaward phase, USAID stated in  its RFAs issued in fiscal year 2011 that a subaward or subcontract is  not considered approved until the USAID Agreement Officer in the  Management Bureau signs a letter approving it.

Award phase. For USAID approval during the award phase, the  partner must submit all of the same information as required during the  preaward phase, as well as a copy of the proposed agreement with  the subpartner and documentation of the process through which the  subaward or subcontract was procured.  In May 2011, to further its  understanding of the work to be performed by its subpartners,  USAID/LAC set up a technical evaluation committee. For ongoing  awards, partners submit proposed subpartners for approval to the  committee. The committee may ask for information on proposed  subpartner activities, among other things, to ensure that the  programmatic content of the work to be performed by subpartners fits  in the scope of the overall award.

State’s Bureau of Administration is responsible for approving subawards  and subcontracts under State/DRL and State/WHA awards, and has  requirements similar to USAID’s. However, State does not clearly inform  its Cuba program partners of these requirements in written guidance and,  as a result, some partners have not provided the required information.

According to language in State’s Standard Terms and Conditions, prior  written approval is required for any subawards or subcontracts unless  they are described in the application and funded in the approved award.  Specifically, State officials told us that the Bureau of Administration  requires certain information and documentation to approve subpartners,  including a copy of the draft agreement with the subpartner, the amount of and budget for the agreement,  the name of the subpartner organization, a description of the subpartner’s role.  the period of performance, and  According to State officials, State’s requirements are currently the same  whether a partner obtains preapproval during the preaward phase or  during the course of the award. They added that, for consultants under  State/DRL awards, the Bureau of Administration does not require their  names because of security and sensitivity concerns. Instead, according to  officials, the Bureau of Administration requires information on the amount  of the consultancy contract, the consultant’s budget, and a description of  the consultant’s role and qualifications. Nevertheless, the detailed  information that State told us is required to preapprove subawards,  subcontracts, and consultants is not specified in written guidance to all  partners. For example, in State’s handbook for grant recipients, State  informs recipients to provide in award proposals details on any  subpartners, but does not specify the type of information to provide. In  addition, based on our review of fiscal year 2010 and 2011 award  documents, we found that in cases when State/DRL is made aware of a  prospective partner’s intention to have a subpartner through review of  their proposal, State/DRL included a requirement in the partner’s award to  provide a copy of the agreement with that specific subpartner to State  within 10 days of its execution. However, State/DRL omitted this  requirement from awards for which it was not clear the partner intended to  use a subpartner. As a result, we found that many partners only received  the broad written guidance in State’s Standard Terms and Conditions and  recipient handbook.

Based on our analysis of the use of subpartners under recent State  awards, we found that State had sufficient information to preapprove the  subawards and subcontracts under State/WHA’s awards. However, State  did not have the detailed information that, according to State officials,  would be required to approve 91 subawards and subcontracts to which  partners obligated funding under 8 State/DRL awards.

According to representatives of one of the State/DRL partners, they  assumed that State was aware of their subawards and subcontracts and  considered them preapproved because the partners’ proposals had  referenced the types of work to be performed under the award by the  subpartners. We found, however, that the partners’ proposals only  provided general information for all proposed subpartners, such as an  estimated total cost aggregated for all subawards and subcontracts. The  proposals did not specify information about individual proposed  subawards or subcontracts, such as proposed periods of performance, a  description of the work to be performed, or copies of draft subpartner  agreements. Officials said that State has provided training to grants  officers over time to ensure greater consistency in the application of  preapproval requirements. However, we interviewed two partners with  ongoing State/DRL awards, and both were still unaware of the information  required for subpartner approval.

section_title: Conclusions
paragraphs: USAID has been implementing Cuba democracy assistance efforts since  1996, and State’s role in the program has increased since it began  providing assistance several years later, in 2004. More than $200 million  has been provided for these efforts over the past 15 years, with recent  growth in the use of worldwide and regional organizations that often use  subpartners to help implement program activities. Despite ongoing  challenges stemming from the difficult operating environment in Cuba,  since our 2006 and 2008 reports, USAID has taken steps to improve its  performance and financial monitoring of Cuba democracy program  awards. While State has also taken initial steps to improve performance  monitoring of its Cuba program awards, we found that State’s financial  monitoring was lacking in certain areas.

For performance monitoring of Cuba program partners, both USAID and  State have required partners to submit program planning and reporting  documents that the agencies use to monitor their partners’  implementation of program activities and progress toward program goals.  Although we found some gaps in these efforts, such as instances in which  partners did not identify targets in performance plans, lacked clearly  defined indicators, or did not report on established indicators, both  agencies are taking steps to improve performance monitoring of their  partners. Specifically, since 2010, USAID has used an external contractor  to enhance its Cuba program monitoring and evaluation efforts. In  September 2012, State hired an organization for a similar purpose, with  work on this effort slated to begin in fiscal year 2013.

To enhance financial monitoring, in 2008 USAID hired an external auditor  to perform financial internal controls reviews of its Cuba program partners  and used a risk-based approach to determine how often each partner  should be reviewed to enable more efficient and effective reviews, with  resources focused on areas of greater risk. Such an approach considers  key factors such as the value of awards, coverage, previously identified  deficiencies, award type, and the frequency of the reviews that will be  needed. USAID’s auditor conducted 30 audits through fiscal year 2012,  which identified questionable charges and weaknesses in partners’  financial management, procurement standards, and internal controls.  State did not conduct financial internal controls reviews for more than  two-thirds of its awards during fiscal years 2010 through 2012, although  State recently awarded funding to an external auditor for this purpose and  has taken steps toward implementing a risk-based approach for these  reviews. However, because these actions were taken recently, State’s  ability to ensure that funds are being spent as intended remains unknown  until it has completed these reviews. Moreover, unlike USAID, State has  not provided clear guidance to its partners regarding requirements for  subpartner approval. As a result, State lacks complete and accurate  information on its partners’ use of subpartners to implement program  efforts. Without adequate information on program subpartners, State has  limited ability to fully understand and assess its partners’ use of program  funds.

section_title: Recommendations for Executive Action
paragraphs: To strengthen State’s ability to monitor the use of Cuba democracy  program funds, we recommend that the Secretary of State take the  following two actions:

To enhance financial oversight, use a risk-based approach for  program audits, including those conducted by an external auditor, that  considers, among other factors, specific indicators—such as value of  awards, prior deficiencies, oversight coverage, and frequency—for  each of State’s Cuba program partners.

To obtain sufficient information to approve implementing partners’ use  of subpartners, provide clear guidance to implementing partners  regarding requirements for approval of the use of subpartners, and  monitor implementing partners to ensure that they adhere to these  requirements.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to USAID and State for review and  comment. Their written comments are reproduced in appendixes II and  III, respectively. USAID noted that it is a challenge to implement  assistance programs in countries where USAID does not have dedicated  staff in-country, and cited their ongoing commitment to ensuring that  Cuba democracy assistance programs managed by USAID receive  appropriate management and oversight to minimize waste and  mismanagement and maximize impact on the ground in Cuba. USAID  highlighted steps that the agency has taken to improve program  management, such as dedicating additional resources to conduct  financial audits and monitoring of awardees, and conducting pre-award  audits on organizations with limited or no experience managing USAID- funded projects. USAID expressed appreciation for our recognition of the  agency’s program improvements.

State concurred with both of our recommendations and noted relevant  actions it has taken or plans to take. Regarding our recommendation to  enhance financial oversight through using a risk-based approach for  Cuba program audits, State noted that the external auditor that State/DRL  recently procured to audit some of its partners has taken steps to  implement a risk-based approach. State further noted that the department  is evaluating staffing in its Bureau of Administration and audit  requirements to be able to address program oversight needs not covered  by this external auditor. State also concurred with our recommendation to  obtain sufficient information to approve implementing partners’ use of  subpartners. State said that it plans to hold meetings with awardees to  discuss award requirements and provide an orientation on resources and  technical support available to Cuba program awardees.

USAID and State also provided technical comments that we have  incorporated, as appropriate.

We are sending copies of this report to the Administrator of USAID, the  Secretary of State, appropriate congressional committees, and other  interested parties. In addition, the report will be available at no charge on  GAO’s website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202)512-3149 or gootnickd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report.  GAO staff who made major contributions to  this report are listed in appendix IV.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report (1) identifies the types and amounts of democracy assistance  that the United States Agency for International Development (USAID) and  the Department of State (State) have provided to Cuba and  characteristics of implementing partners, subpartners, and program  beneficiaries; (2) reviews USAID’s and State’s efforts to implement the  program in accordance with U.S. laws and regulations and to address  program risks; and (3) examines USAID’s and State’s monitoring of the  use of program funds. This report is a publicly releasable version of a  prior GAO report, issued in December 2012, that USAID and State had  designated Sensitive But Unclassified.

To identify types and amounts of democracy assistance, and  characteristics of implementing partners (partners), subpartners, and  beneficiaries, we reviewed congressional notifications, agency and  partner documents and data on program awards and funding, copies of  award agreements and contracts and any modifications, partner interim  and final reports, and other key documents and data. We interviewed  agency officials and partner representatives to corroborate information  and data obtained. We also discussed Cuba democracy assistance with  officials at the National Endowment for Democracy. We reviewed  amounts of assistance and characteristics of partners that received  program funding in fiscal years 1996 through 2012. To test the reliability  of funding data, we compiled lists of all funding that went to each partner  and sent these lists to USAID and State for verification. In addition, we  reviewed the use of subpartners under all of USAID’s and State’s 29  awards and contracts that were active in fiscal year 2011, which were  funded with appropriations from fiscal years 2007 through 2009. These  awards and contracts were awarded to 22 partners. We obtained  information and data from each of the partners on their use of  subpartners under the respective awards and contracts. For the purposes  of our review, we defined subpartners as recipients of subawards,  including subgrants, grants under contract, subcontracts, or consultants.  To test the reliability of subpartner data, we compared information  obtained from partners to agency information, and interviewed agency  and partner officials regarding any discrepancies. We determined data on  program funding and on the use of subpartners were sufficiently reliable  for the purposes of this report.

To review USAID’s and State’s efforts to ensure that program  implementation is consistent with U.S. laws and regulations, and to  provide guidance to partners and subpartners regarding program risks,  we reviewed relevant U.S. laws and regulations and agency and  departmental policies and procedures. We also interviewed USAID and  State legal and program officials regarding program implementation and  related risks. For selected partners and subpartners, we reviewed award  agreements; contracts; and partner guidance, policies, and procedures  regarding program security risks and travel security and safety. We also  interviewed representatives of partners and subpartners regarding  program security risks and traveler safety and security measures.

We analyzed reported activities and assistance delivered, and  management and internal controls for a nonprobability, nongeneralizable  sample of six USAID and State partners and 11 of their subpartners, in  order to assess performance and financial monitoring and oversight of  their awards and contracts. While the results of our analysis of these six  partners are not generalizable to the population, we selected this  nonprobability sample to be generally reflective of other partners in the  population and to cover a large proportion of the overall dollar value of  aid. We selected at least one partner from each of the four USAID and  State bureaus and offices implementing program assistance—USAID’s  Bureau of Latin American and Caribbean Affairs (LAC); the Office of  Transition Initiatives (OTI) within USAID’s Bureau for Democracy,  Conflict, and Humanitarian Assistance; State’s Bureau of Democracy,  Human Rights, and Labor (DRL); and State’s Bureau of Western  Hemisphere Affairs (WHA). While there were in total 29 partners from  which we selected, the six selected partners were among the top 15  recipients of program funding awarded in fiscal years 2007 through 2010,  and represented about 60 percent of funding for awards active in fiscal  year 2011. Other factors that we considered in selecting partners included  the timing of the awards and contracts—we selected partners with awards  or contracts active in fiscal year 2011—and other strategic factors, such  as the type of activity planned under the award or contract and whether  the partner had ongoing or new program activities planned for fiscal year  2012 and beyond. We judgmentally selected two subpartners for further  review under each of the partners, except for the one partner that only  used one subpartner. To select subpartners, we considered factors such  as funding received, whether the subpartner had recent activity in fiscal  year 2011, the type of activity implemented, and other strategic factors.  These subpartners are not generalizable to the population, but provided  additional program context and examples for the purposes of our review.  Table 5 provides additional information on the partners in our sample.

To examine USAID’s and State’s monitoring of the use of program funds,  we reviewed and analyzed performance and financial documentation and  data and conducted interviews with USAID and State officials, as well as  representatives of partners and subpartners in our sample. In addition, we  conducted fieldwork in Miami, Florida—where we interviewed  representatives and reviewed documentation at local partners and  subpartners—and at the U.S. Interests Section (USINT) in Havana,  Cuba—where we interviewed U.S. officials and partner representatives,  and observed WHA-funded democracy assistance activities at post. We  examined USAID’s and State’s program operational plans and  performance progress reports; agency and partner policy and procedure  manuals and program guidance; agendas and information presented at  quarterly partner meetings; partner and subpartner award agreements  and contracts; partner implementation, monitoring and evaluation (M/E)  plans; partner and subpartner interim and final performance and financial  reports; and audits of partner activities, among other documents and  data.

To review partners’ M/E plans, we assessed whether each plan had three  of the basic elements of M/E plans, as described in USAID and State  guidance: (1) clearly defined indicators, (2) targets set for each indicator,  and (3) data collection methods specified for each indicator. We selected  these criteria since they were common elements that M/E plans should  have, according to USAID and State guidance. Because we focus on  assessing the agencies’ and partners’ abilities to monitor, not to evaluate,  the Cuba democracy program, we did not select criteria for assessing any  portions of the M/E plans related to evaluation. We analyzed each M/E  plan to determine the extent to which the plan incorporated each element.  For example, we determined that an M/E plan partially met the criterion  for clearly defined indicators if the plan had indicators but did not provide  definitions for the indicators. For targets, we assessed a partner’s M/E  plan as having partially met the criterion if there were relevant targets  specified for some but not all indicators. For data collection methods, we  assessed the partner’s M/E plan as having partially met the criterion if  data collection methods were only described for some indicators or if the  plan generally described data collection methods, but did specify which  methods pertained to each indicator.

To review partners’ progress reports, we assessed whether progress was  clearly reported against each indicator identified in the M/E plans. We  determined that a partner’s progress report met this criterion if the report  included specific updates on progress for each indicator, with any  progress for quantitative indicators (e.g., number of beneficiaries)  reported in numeric form. We assessed a partner’s progress report as  partially having met the criterion if it reported progress in this specific way  on some but not all indicators. We assessed a partner’s progress report  as not having met the criterion if the partner did not clearly report  progress on any of its indicators.

Additionally, we interviewed officials from the two organizations  contracted by USAID/LAC to conduct performance and financial reviews  of partners. We reviewed partner and subpartner internal controls and  related residual fiscal accountability risk, and also performed walk- throughs of their disbursement processes and reviewed invoices and  other supporting documentation. We primarily focused our review on  compliance with internal controls standards relating to monitoring of  program funds and to reviewing certain control activities. We performed  selected expenditure testing at each partner and subpartner in our  sample, when applicable, to identify potential internal controls or financial  management issues. We also reviewed our previous reports and  interviewed experts to identify lessons learned and to better understand  challenges related to providing democracy assistance for Cuba.

We conducted this performance audit from September 2011 to January  2013 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: Comments from the U.S. Department of State

section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Leslie Holen, Assistant Director;  Elisabeth Helmer, Heather Latta, Joshua Akery, Laura Bednar, Beryl  Davis, David Dayton, David Dornisch, Ernie Jackson, Crystal Lazcano,  John Lopez, Reid Lowe, and Kim McGatlin provided significant  contributions to the work. Etana Finkler and Jeremy Sebest provided  technical assistance.


Question-summary annotations: questions: question: What is the role of USAID and the State Department in Cuba?
answer: The U.S. Agency for International Development (USAID) and Department of State (State) provide democracy assistance for Cuba aimed at developing civil society and promoting freedom of information.
child_questions: question: Who are the beneficiaries for these programs?
answer: Typical program beneficiaries include Cuban community leaders, independent journalists, women, youths, and marginalized groups.

question: What is the funding breakdown between USAID and State?
answer: USAID receives the majority of funding allocated for this assistance, although State has received 32 percent of funding since 2004.

question: How does USAID and State funding compare to that of other groups?
answer: In recent years, both USAID and State have provided more funding for program implementation to for-profit and nongovernmental organizations (NGO) with a worldwide or regional focus than to universities and to NGOs that focus only on Cuba.

question: How do these organizations use subpartners?
answer: All types of implementing partners, but worldwide or regional organizations in particular, used subpartners to implement program activities under 21 of the 29 awards and contracts that GAO reviewed.

questions: question: What kinds of funding discretion do agencies in Cuba get?
answer: USAID and State legal officials view the Cuba democracy program’s authorizing legislation as allowing the agencies discretion in determining the types of activities that can be funded with program assistance.
child_questions: question: What is the responsibility of these agencies?
answer: Agency officials added that the agencies ensure that program activities directly relate to democracy promotion as broadly illustrated in related program legislation.
child_questions: question: How must the agencies determine which activities are permitted?
answer: The officials stated that organizations are expected to work with agency program officers to determine what activities are permitted or appropriate.

question: How are the agencies expected to spend U.S. government funds?
answer: In addition, they said that program partners and subpartners are expected to spend U.S. government funds consistent with U.S. laws, and that requirements in primary award agreements generally flow down to any subpartners.

questions: question: What did GAO discover in its review of USAID and State?
answer: USAID has improved its performance and financial monitoring of implementing partners’ use of program funds by implementing new policies and hiring contractors to improve monitoring and evaluation and to conduct financial internal controls reviews, but GAO found gaps in State’s financial monitoring.
child_questions: question: What kinds of progress are these agencies making?
answer: While GAO found some gaps in implementing partners’ performance planning and reporting, both agencies are taking steps to improve performance monitoring.

question: What kinds of financial review does USAID undergo?
answer: For financial monitoring, USAID performs financial internal controls reviews of its implementing partners with the assistance of an external auditor. Since 2008, USAID has used a risk-based approach to determine the coverage and frequency of the 30 reviews the auditor has conducted, which have identified weaknesses in implementing partners’ financial management, procurement, and internal controls.

question: What kind of financial review does State undergo?
answer: However, because of resource constraints, State did not perform financial internal controls reviews for more than two-thirds of its implementing partners during fiscal years 2010 through 2012. State procured an external financial auditor in September 2012 that plans to review more than half of State’s implementing partners, and has taken steps toward implementing a risk-based approach for scheduling these reviews.

question: What kind of review is necessary for subpartner use?
answer: Federal regulations generally require agencies to approve the use of subpartners.
child_questions: question: How did USAID perform on its subpartner metrics?
answer: GAO found that USAID issued specific guidance in 2011 to its implementing partners on requirements for subpartner approval.

question: How did State require on its subpartner metrics?
answer: While State told GAO it has similar requirements, State’s requirements are not clearly specified in its written guidance. As a result, State was not provided with the information it would have needed to approve at least 91 subawards and subcontracts that were obligated under eight awards.