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

Letter

Background

The strategic objective of USAID’s Cuba Program—part of the agency’s Bureau for Latin America and the Caribbean—is to help build civil society in Cuba by increasing the flow of accurate information on democracy, human rights, and free enterprise to, from, and within Cuba. The responsibilities of the Cuba Program office include cochairing an interagency working group, developing assistance strategies and programs, recommending Cuba democracy assistance awards, and monitoring the implementation of USAID grants. Because of the absence of diplomatic relations between the United States and Cuba, USAID does not have staff in Cuba and its Washington-based staff have been unable to obtain visas to visit the island since 2002. State’s U.S. Interests Section (USINT) in Havana plays a key role in implementing USAID’s Cuba democracy assistance.

From 1996 through 2005, USAID’s Cuba Program awarded about $67 million in democracy assistance grants to NGOs and universities to support numerous activities related to promoting democracy and developing Cuba’s civil society. In 2005, for example, Cuba Program grantees reported providing humanitarian and material assistance, training for independent civil society groups, and uncensored information. Several grantees also worked to increase international awareness of the Cuban regime’s human rights record through activities such as sponsoring conferences and publishing studies, while one grantee focused primarily on planning for a democratic transition in Cuba. USAID records show that Cuba Program grantees provided this assistance to, among others, human rights activists, political dissidents, independent librarians, journalists, and political prisoners and their families. From 2006 through 2008, USAID’s Cuba Program awarded 10 new democracy assistance grants totaling about $16.3 million, bringing the total value of grants since the Cuba Program’s inception to about $83 million. As of October 2008, the Cuba program had 13 grants totaling about $32 million; these grants ranged in size from $500,000 to nearly $11 million.

Congress appropriated $45 million for U.S. democracy assistance for Cuba in 2008; USAID has been allocated about $30 million of the 2008 appropriation, with the remainder allocated to State. (Fig. 1 shows the funding for U.S. democracy assistance for Cuba for 1996-2008.) The administration has requested $20 million for 2009; agency allocations for these funds have not yet been established. Increased funding for democracy assistance was a recommendation of the interagency Commission for Assistance to a Free Cuba (CAFC). USAID’s Cuba Program plans other substantial awards over the next few years.

The following summarizes our November 2006 report’s findings of problems with the USAID Cuba Program’s awards and oversight of its Cuba democracy assistance from 1996 through 2005.

Awards. USAID’s Cuba Program relied on unsolicited proposals to award about 95 percent (about $62 million) of its democracy assistance, although agency policy generally encourages competition for such awards. USAID’s Cuba Program also frequently modified the amounts and length of existing grants, increasing the aggregate value of these initial agreements from about $6 million to about $50 million. In contrast, federal law and agency policy generally favor a competitive process; moreover, closing grants and initiating new ones has recognized advantages.

Oversight. Weaknesses in USAID’s oversight of its assistance grants during the preaward, award, implementation, and closeout phases increased the risk of grantees’ improper use of grant funds and noncompliance with applicable laws and regulations. Preaward audits of some grantees were not always completed before grant award, and USAID did not follow up adequately to correct deficiencies identified by these audits. Standardized language in grant agreements lacked the detail necessary to support program accountability and the correction of grantee deficiencies identified during preaward reviews. Moreover, the Cuba Program office did not adequately identify, prioritize, or manage at-risk grantees and did not have critical review or oversight procedures in place to monitor grantee activities or cost sharing. Additionally, USAID did not appear to routinely follow prescribed closeout processes to identify and recover inappropriate expenditures or unexpended funds. Our limited review of 10 grantees’ financial records identified questionable expenditures and significant internal control weaknesses, which USAID had not detected, at 3 of the grantees; we referred these problems to the USAID Office of Inspector General.

Figure 2 shows our 2006 recommendations to strengthen USAID’s oversight of the Cuba Program’s democracy grants. In 2006 and 2007, USAID said that it was taking steps to address our recommendations and improve its oversight of democracy assistance for Cuba.

USAID Has Taken Steps to Improve Awards and Oversight of Cuba Democracy Assistance, but Staffing for Oversight Is Not Yet Complete

Since 2006, USAID has taken steps to improve the Cuba Program’s award and oversight of democracy assistance. To address identified problems with awards, since 2006, the Cuba Program has competitively awarded all democracy assistance grants and discontinued its use of funded grant extensions. To improve its oversight of the grants, USAID has provided additional resources to manage and oversee the Cuba Program’s aid and implemented specific improvements in grant oversight to address our recommendations. (See app. II, table 2, for a summary of our November 2006 findings and recommendations regarding the Cuba Program’s awards and oversight of democracy assistance as well as USAID’s proposed or reported corrective actions and the status of these actions.) However, as of November 2008, USAID had not yet achieved the staffing level it assessed as needed for appropriate oversight. Moreover, because many of USAID’s actions to improve oversight were taken recently, their impact on the risk of Cuba Program grantees’ misusing funds and failing to comply with U.S. laws and regulations is not yet evident.

USAID’s Cuba Program Has Awarded Grants More Competitively and Discontinued Its Use of Funded Grant Extensions

USAID’s Cuba Program has competitively awarded all $16 million (10 grants) of democracy assistance since 2006. In comparison, during its first 10 years, the Cuba Program competitively awarded only 5 percent (about $4 million, 5 grants) of its democracy assistance. The increased use of competition reflects the USAID Cuba Program’s implementation, in 2007 and 2008, of a policy of using competitive solicitation as the principal method for awarding its democracy assistance grants.

Further, since 2006, USAID’s Cuba Program has discontinued its practice of modifying existing grants to provide substantial additional funding rather than awarding new grants and has implemented a policy that requires grantees to submit interim evaluations in conjunction with any future requests for additional funding. In 2006-2008, the Cuba Program approved a limited number of no-cost grant extensions but did not consider funded modifications to expand the program. Additionally, in 2007, the Cuba Program notified grantees that they would be required to submit interim program evaluations when requesting significant increases in funding or extensions; as of November 2008, the Cuba Program had received no such requests.

Subsequent to these changes in the USAID Cuba Program’s practices and policy, the percentage of its grantees that are worldwide or regional NGOs increased while the percentage of grantees that are Cuba-specific NGOs declined (see fig. 3). According to the Cuba Program Director, the shift in grantee type reflects the more formal requirements for submitting a grant proposal contained in the Cuba Program’s 2007 and 2008 annual program statements, such as the requirement that proposals include a detailed implementation plan. In addition, the shift reflects a decision, starting with the 2008 program statement, to fund grants that incorporate capacity building for subgrantees as an important element of program activity. The Director noted that building subgrantee capacity supports the goal of improving grant oversight, as well as the program goal of developing civil society organizations that will be effective in assisting Cuba’s transition to democratic governance and a free market economy.

USAID Is Taking Actions to Improve Oversight of Cuba Program Democracy Assistance, but Staffing Remains Incomplete and Impact of USAID’s Actions Is Not Yet Evident

USAID has recently taken, or plans to take, actions to increase the Cuba Program’s resources for oversight. In addition, USAID has recently taken actions aimed at improving specific aspects of the Cuba Program’s grant oversight. However, staffing of the Cuba Program has not reached the level that USAID has determined is needed to ensure adequate oversight. In addition, in some cases the impact of these actions on the risk of Cuba Program grantees’ misusing funds and failing to comply with U.S. laws and regulations is not yet apparent.

USAID Is Increasing Resources for Cuba Program Grant Oversight

To increase resources aimed at improving the management and oversight of Cuba Program democracy assistance, USAID established a Cuba project committee comprising key USAID and State senior managers in December 2006; has hired more staff for the Cuba Program office since January 2008; and contracted for financial services—including reviews of grantee internal controls, procurement practices, and expenditures—to enhance oversight of grantees in April 2008. In addition, the USAID Cuba Program plans to use contract services to provide technical assistance and build the capacity of its grantees, particularly smaller organizations.

Cuba project committee. USAID established a project committee in December 2006 to lead the agency’s efforts to improve its management and oversight of Cuba Program democracy assistance and provide greater attention from senior management. This committee consisted of senior officials from USAID’s Bureau of Management (which includes the Office of Acquisition and Assistance) and General Counsel and State’s Bureau of Western Hemisphere Affairs (including the Cuba Transition Coordinator), in addition to the USAID Cuba Program Director. The committee met at least quarterly to address Cuba assistance planning, preaward reviews, and grantee monitoring and evaluation. According to USAID records, topics of discussion have included (1) identifying high-risk grantees, including outstanding audit issues, the need for follow-on reviews, and review of grantees’ monitoring and implementation plans; (2) issuing a communication to reinforce USAID guidance on preaward reviews and stress the importance of timely follow-up to identified findings; (3) reviewing standard grant provisions to ensure that grantees were provided clear guidance on how to access referenced regulatory materials; (4) obtaining and approving updated and expanded implementation plans from certain grantees; and (5) obtaining detailed cost-share records from contributing grantees and submitting them to the Office of Acquisition and Assistance for review. In late 2007, USAID divided the project committee’s responsibilities between two new committees.

Cuba Program staffing. Since January 2008, to improve its implementation of Cuba democracy assistance, USAID has increased staffing in the program office from two to five persons; however, staffing remains short of the 11 persons recommended in USAID assessments. In December 2007, in response to concerns expressed in our November 2006 report and a recommendation in a September 2007 report by USAID’s Office of Inspector General, a formal USAID assessment recommended staffing the program office with a director and eight staff to ensure successful implementation of the program as well as appropriate monitoring and oversight of grantees and grant funds. Subsequently, a more informal assessment by the USAID Cuba Program office identified the need for two additional staff. Based on these assessments, the Cuba Program has hired three new staff members since January 2008, bringing the total staff to five persons as of October 2008. According to the Cuba Program Director, the program plans to hire two more staff members by January 2009 and a third by July 2009 at the earliest.

Financial services contract. To strengthen grantee oversight and better manage program risks, USAID’s Cuba Program contracted in April 2008 with a firm headquartered in Washington, D.C., to conduct 10 to 12 financial reviews annually over 2 years, at an estimated cost of $1 million. USAID procured these services to strengthen program management and provide grantees—particularly smaller, less experienced organizations— needed guidance and technical support as recommended in our 2006 report. According to the contract statement of work and related documents, the contractor will (1) conduct annual financial reviews of grantees, including grantees’ internal controls, procurement practices, and expenditures; (2) follow up on the findings and recommendations of preaward reviews and other audits to advise whether grantees have corrected any weaknesses that were identified; and (3) conduct other special reviews as needed. The contracting officer and the Contract Audit Management Division within USAID’s Office of Acquisition and Assistance review and approve all work plans (including research design, data collection instruments, and analysis plans) and draft and final reports. In June 2008, the contractor began reviews of Cuba Program grantees’ procurement systems, starting with three Miami-based grantees.

Program to build grantee capacity. To help improve the management and oversight of Cuba democracy assistance, USAID’s Cuba Program has taken initial steps to establish a means to provide essential training and additional oversight of smaller grants using a “grants under contract” mechanism. The decision to fund this program was based on USAID’s assessment of grantee risk, particularly the risks posed by smaller, less experienced grantees. USAID expects to start implementing this program in 2009.

USAID Has Taken Specific Actions to Improve Cuba Program Grant Oversight

USAID has taken a number of actions specifically aimed at strengthening oversight by ensuring preaward reviews and follow-up; improving grantee internal controls and implementation plans; providing guidance and monitoring for assistance and cost sharing; and developing structured approaches for site visits and other monitoring.

Preaward reviews and follow-up. USAID has taken several actions to ensure that preaward reviews are completed prior to grant awards. The agency also has taken several actions to improve follow-up on issues identified during preaward reviews. Since January 2007, the Cuba Program, working though the Cuba project and internal management committees, has worked to provide sufficient lead time for preaward reviews and tracked the resolution of preaward review issues. In March 2007, USAID’s Office of Acquisition and Assistance issued an agencywide bulletin that stressed the importance of (1) providing sufficient lead time for the completion of preaward reviews and (2) timely follow-up and resolution of deficiencies identified in those reviews. In 2007, USAID also developed revised grant agreement language linking resolution of issues and findings of preaward reviews and follow-up reviews to the obligation of incremental grantee funding; to date, this language has been used in grant agreements as appropriate. According to the Chief of the Contract Audit Management Division within USAID’s Office of Acquisition and Assistance, the Cuba Program’s planned use of the new financial review services contract will help ensure timely follow-up on the results of preaward reviews. Previously, competing demands on the division for preaward and follow-up reviews by other USAID bureaus and offices had delayed reviews for some Cuba grantees.

Grantee internal controls and implementation plans. USAID has taken several actions to require that grantees establish and maintain adequate internal control frameworks and develop approved grant implementation plans.

Internal controls. The Cuba Program office provided grantees guidance for accessing reference materials to relevant policies and procedures on several occasions. This guidance included an addendum for grant agreements, linked to relevant policies and procedures, that USAID developed in March 2007 and that USAID records show was provided to all grantees at, for example, grantee quarterly coordination meetings and by e-mail. Grantees also were e-mailed a list of Internet links for all statutory, regulatory, and legal references in their USAID grant agreements. Additionally, in 2007, the Cuba Program office developed a briefing outline to be used in explaining internal control and other requirements to new grantees.

Implementation plans. In January 2007, the Cuba project committee recommended that the Cuba Program (1) review grantees’ existing implementation plans to ensure that such plans were documented and adequate and (2) request that grantees with significant remaining grant funding update and expand their implementation plans. The Cuba Program completed its initial round of reviews in May 2007; follow-up on recommended changes was completed April 2008. The approved plans provide a monthly summary of anticipated activities to assist in monitoring grantees and are to be updated annually. Further, in 2007, the Cuba project committee recommended that the Cuba Program and the Office of Acquisition and Assistance develop and include a new provision in grant agreements to require that grantees submit written implementation, monitoring, and evaluation plans for approval within 30 days of the award’s start date. In 2008, USAID officials agreed on the grant provision, which has been included in agreements for new awards.

Guidance and monitoring for assistance and cost sharing. USAID has taken several steps to provide grantees specific guidance on permitted types of assistance and on cost sharing and to ensure monitoring of grantee expenditures for these items.

Permitted assistance. To prevent the use of grant funds for inappropriate expenditures, as identified in our 2006 report, USAID has provided grantees clearer, more detailed guidance regarding items that may be provided as humanitarian or material assistance. In addition, in early 2007, the Cuba Program required existing grantees to include detailed lists of proposed items in their updated implementation plans and requires such lists in the implementation plans required to be submitted with new grant proposals. USAID reports that these lists enhance oversight and monitoring of grantee activities. In addition, the financial services contractor will verify whether grantee assistance costs were allowable.

Cost sharing. USAID has provided agencywide guidance on cost sharing and reviewed grantees’ cost-share contributions. In January 2007, as recommended by the Cuba project committee, USAID’s Office of Acquisition and Assistance issued an agencywide bulletin that reemphasized the restrictions and limits on cost sharing for grants and clarified that USAID does not permit funds obtained from the National Endowment for Democracy to be counted toward grantee cost-share requirements. The cost-share policy is reflected in Cuba democracy grant agreements. In January 2007, the Cuba project committee recommended that the Cuba Program obtain detailed cost-share records from grantees and submit these records to the Office of Acquisition and Assistance for review. As of mid-June 2008, USAID had completed its review of the cost-share records for all nine then-current grantees with cost-share obligations and had found that three grantees had not met a substantial share of their cost-share obligations. USAID reduced one grantee’s cost-share obligation from $1,065,860 to $523,450 and was following up with the other two grantees regarding their failure to meet their cost-share obligations. During two site (monitoring) visits that we observed in June 2008, USAID staff reviewed the types of cost sharing permitted and emphasized the importance of keeping adequate records to support cost-share claims. In addition, the new financial services contractor will review grantee support for cost-share claims.

Structured approach for site visits and other monitoring. USAID has taken, or plans to take, several actions to develop and implement a more formal, structured approach for site visits and other grant monitoring activities. These actions taken included the following: The USAID Cuba Program has developed and used a formal, structured approach for its quarterly site visits to grantees. To facilitate and ensure consistency in these visits, program staff use a form to describe grantee activities, evaluate grantee accomplishments, and assess compliance with grant internal control and other requirements. During our observation of two site visits, we noted that USAID sent copies of these forms to grantees via e-mail in advance of the visits so that grantees could confirm the accuracy of basic data.

USAID reports taking initial steps to use information gathered to identify at-risk grantees and prioritize monitoring. For example, in May 2007, after noting poor grantee record keeping during several site visits, the former program Director e-mailed grantees to emphasize the need to maintain adequate documentation in their offices of labor costs, rent expenses, and telephone costs, as well as other records needed to demonstrate that U.S. funds were being spent for the grants’ authorized purposes. USAID also has emphasized this requirement during quarterly grantee coordination meetings and site visits. The current Cuba Program Director told us that, using new staff resources, she plans to develop and implement a formal system for performing detailed analyses of the site visit results to identify at-risk grantees and prioritize monitoring. As a first step, the Cuba Program recently initiated quarterly reviews of the program’s portfolio of grantees to identify at-risk grantees and other issues.

Impact of USAID’s Actions to Improve Oversight Is Not Yet Evident

Because many of USAID’s actions to improve its oversight of the Cuba democracy grants were implemented recently, in 2007 and 2008, their impact on the risk of grantees’ misusing grant funds or failing to comply with U.S. laws and regulations is not yet evident. In mid-June 2008, USAID’s financial services contractor’s review of financial records for three Cuba Program grants found that one of the grantees—GAD—lacked adequate support for some purchases. In late June 2008, we confirmed the USAID contractor’s finding during our limited review of financial and other records at 5 of the 10 grantees examined for our November 2006 report (see app. I for more information about this limited review). Specifically, we identified several cases where substantial charges to GAD’s credit card were not supported by receipts listing the items purchased.

USAID Took Several Steps in Response to Reports of Misused Grant Funds but Has Not Provided for Ongoing Risk Management

In response to reports of fraud at organizations that had received the USAID Cuba Program’s two largest democracy aid grants—CFC and GAD—USAID suspended both grants pending the results of USAID Inspector General investigations. Additionally, in mid-July 2008, USAID decided to accelerate planned reviews of Cuba democracy grantees’ procurement systems under the April 2008 financial review services contract and to conduct audits of grantees’ incurred cost under the Inspector General; pending the results of those reviews and audits, USAID partially suspended two more grants. The procurement reviews, which were completed in August 2008, identified weaknesses at three grantees; USAID is working with the grantees to correct these weaknesses. USAID expects the incurred cost audits to be completed by November 2008 under a contract with another firm.

CFC. In March 2008, USAID suspended its $7.2 million grant to CFC, awarded in 2005, after the CFC’s Executive Director informed USAID that the organization’s former Chief of Staff had misused USAID grant funds. CFC’s grant expired on June 30, 2008, while it was suspended. In July 2008, auditors from USAID’s Contract Audit Management Division within the Office of Acquisitions and Assistance confirmed CFC’s estimate of the amount of funds stolen and concluded that the grantee had taken action to strengthen its system of internal control. On September 22, 2008, USAID reinstated the grant for 6 months.

GAD. In July 2008, USAID suspended its $10.95 million grant to GAD, which was awarded in September 2000. On June 30, 2008, GAD’s Executive Director had informed USAID that, in following up on deficiencies that USAID’s financial services contractor and we had identified earlier that month, he had determined that one of GAD’s employees had used the organization’s credit card to make unauthorized purchases for his personal use; the employee had signed a statement admitting to these actions and had promised to repay the cost of these items and had been fired. USAID suspended the grant on July 2 and referred the matter to the USAID Inspector General for investigation; as of November 2008, the grant remained suspended, pending conclusion of the Inspector General’s investigation and the results of a financial system review by the financial review services contractor. The grant was scheduled to expire on September 30, 2008, but USAID extended the grant to March 31, 2009, to permit completion of the investigation and review.

On July 18, 2008, USAID announced that, to determine whether financial vulnerabilities exist at grantees and how best to address them, it would initiate reviews of the Cuba Program grantees’ procurement systems under the April 2008 contract and subsequently conduct audits of grantees’ incurred cost under the USAID Inspector General. In addition, USAID reported that it had partially suspended two smaller grants pending the outcomes of the procurement reviews. The program’s other grants remained active, based on USAID’s review of the grantees’ A-133 audits and other relevant information, but pending the results of the procurement reviews and incurred cost audits announced in July 2008.

Reviews of grantees’ procurement systems. In July 2008, USAID instructed the financial services contractor hired in April 2008 to accelerate planned reviews of current grantees’ procurement systems. The procurement reviews, completed in August 2008, identified internal control, financial management, and procurement weaknesses at three grantees. On September 24, 2008, USAID lifted one of the two partial suspensions after the grantee agreed to take several corrective actions. USAID is assessing whether to lift the other partial suspension based on grantee corrective actions, a change in grantee management, and other factors. GAD, the third grantee where the review found weaknesses, remains suspended. As of October 2008, the acceleration of the procurement reviews had used nearly half (about $450,000) of the $1 million set aside for the 2-year financial services contract signed in April. Further, USAID had not committed the additional funds needed to continue the planned reviews of grantees’ internal controls, procurement practices, and expenditures—key elements of the program’s approach to reducing grantee risks—over the contract’s remaining 18 months.

Audits of grantees’ incurred cost. The USAID Inspector General will oversee the audits of grantees’ incurred cost, to be conducted under a separate contract with another firm. Initial work on the first three of these audits began in mid-September 2008; the Inspector General expects to complete nine audits by November 2008. USAID officials said that they would take steps, as appropriate, to address weaknesses identified by these audits. USAID estimated the total cost of these audits at about $300,000 to $340,000.

Table 1 summarizes the status of USAID’s Cuba democracy grants as of October 2008.

Conclusions

USAID has taken numerous actions since 2006 to improve the Cuba Program’s award processes and oversight of grantees. However, some planned actions have not yet been implemented. As recommended in our November 2006 report, USAID took steps to improve the timeliness of preaward reviews and resolve issues identified during those reviews and has provided more specific guidance on permitted types of humanitarian assistance and cost sharing. To provide resources and expertise, USAID also contracted with a financial review services firm to follow up on audit findings; review grantees’ internal controls, procurement practices, expenditures, and cost sharing; and provide grantees needed technical assistance. In addition, the Cuba Program now requires grantees to develop implementation plans and has developed a structured approach to monitoring grantees. However, staffing of the program office has not reached the level USAID determined is needed for effective grant oversight and, as a result, the office has taken only preliminary steps to implement a key part of its risk management approach—that is, to systematically analyze site visit and other grantee data to identify at-risk grantees and prioritize its monitoring.

Moreover, the impact of USAID’s actions to improve the Cuba Program’s risk management on grantee risk is uncertain because most of the actions were taken recently. This uncertainty is underscored by the recent findings—similar to those we reported in 2006—of grantees’ misusing funds and of weaknesses in grantees’ internal control, financial management, and procurement systems that have not yet been resolved. Until the current audits of individual grantees’ incurred cost are completed and the Cuba Program takes steps to address any known risks and prevent their recurrence, the program’s ability to ensure the appropriate use of grant funds remains in question.

Recommendations for Executive Action

To strengthen oversight of USAID’s Cuba Program grants and the program’s ability to ensure the appropriate use of grant funds, we recommend that the USAID Administrator take the following two actions: ensure that the Cuba Program office is staffed at the level that is needed to fully implement planned monitoring activities, such as the systematic analysis of grantee data to identify at-risk grantees, and that the agency has determined is necessary for effective oversight; and periodically assess the Cuba Program’s overall efforts to address and reduce grantee risks, particularly with regard to grantees’ internal controls, procurement practices, expenditures, and compliance with laws and regulations.

Agency Comments and Our Evaluation

USAID provided written comments on a draft of this report, which are reprinted in appendix III, as well as technical comments that we incorporated as appropriate.

In its written comments, USAID concurred with our recommendation to staff the Cuba Program at levels needed to implement planned monitoring activities. The agency said that it was working to ensure that the Cuba Program has adequate staffing for strong program oversight and noted that it had temporarily assigned three staff to the program while implementing plans to recruit and hire additional permanent staff. USAID also concurred with our recommendation to periodically assess the Cuba Program’s overall efforts to address and reduce grantee risk. The agency said that the Bureau for Latin America and the Caribbean would take specific steps to assess the risks associated with the Cuba Program’s grantee pool in its ongoing risk assessment work. USAID noted that the bureau’s assessment would incorporate results from grantee monitoring and site visits, reviews by the financial services contractor hired in April 2008, preaward reviews, and results from audits by the agency’s Inspector General.

We are sending copies of this report to the USAID Administrator, appropriate congressional committees, and other interested parties. The report also is available at no charge on the GAO Web site at http://www.gao.gov.

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

Appendix I: Scope and Methodology

To review the actions that U.S. Agency for International Development (USAID) has taken since 2006 to improve its award and oversight of the Cuba Program’s grants as well as actions taken in response to the recently detected misuses of program grant funds, we analyzed USAID and Department of State (State) records, including agendas and minutes for meetings of USAID’s Cuba project committee, draft and final changes to agency policy and guidance, and audit and financial reports of grantee activities. We reviewed and analyzed USAID budget, staffing, and procurement records. With regard to staffing, for example, we analyzed agency staffing assessments and related records; with regard to USAID Cuba Program awards and modifications, we analyzed agency grant documents and related records. We verified our analysis of these records with agency officials. In June 2008, we observed two quarterly grantee monitoring visits and one orientation visit to a grantee with a new award conducted by Cuba Program office staff. In addition, we conducted limited follow-up reviews of financial and other records at 5 of the 10 grantees that we had analyzed in our November 2006 report. In conducting these follow-up reviews, we employed the same methodology that we had used for our 2006 report. We also reviewed audit reports issued by the State and USAID Inspectors General in July and September 2007, respectively. We interviewed agency officials, including the current and former Cuba Program Directors, contracting officials, and auditors, about the actions taken in response to our report and actions taken in response to reported misuse of grant funds at two grantees. Additionally, we interviewed officials from the DMP Group, to which USAID awarded a contract in April 2008 to conduct a range of financial reviews of its Cuba Program grantees, and we reviewed DMP’s work papers and draft and final reports. We did not examine USAID’s selection of this firm or the reasonableness of the contractor’s fees.

We conducted this performance audit from May through July 2007 and from May through November 2008, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Status of USAID’s Proposed and Reported Actions to Improve Awards and Oversight for Cuba Democracy Assistance

Table 2 summarizes our November 2006 findings and recommendations regarding USAID’s awards and oversight of democracy assistance for Cuba as well as USAID’s proposed or reported corrective actions, as of September 2008, and our assessment of the status of these actions.

Appendix III: Comments from the U.S. Agency for International Development

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the individual named above, Jeanette M. Franzel, Director, Financial Management and Assurance; Emil Friberg, Jr.; Michael Rohrback; Bonnie Derby; Todd M. Anderson; Sunny Chang; Lisa M. Galvan-Treviño; and Reid Lowe made key contributions to this report.