Democracy Assistance: State Should Improve Accountability Over Funding; USAID Should Assess Whether New Processes Have Improved Award Documentation
Released: 2017-12-14T00:00:00

Letter

Background

Democracy Assistance Program Areas

The U.S. government supports various types of democracy assistance activities, which USAID and State categorize under the DRG portfolio. USAID and State use their Updated Foreign Assistance Standardized Program Structure and Definitions to categorize and define DRG program areas. As updated in April 2016, this document defines the aims of DRG as “to advance freedom and dignity by assisting governments and citizens to establish, consolidate, and protect democratic institutions, processes, and values, including participatory and accountable governance, rule of law, authentic political competition, civil society, human rights, and the free flow of information.” Prior to the 2016 update, DRG program areas were (1) rule of law and human rights, (2) good governance, (3) political competition and consensus-building, and (4) civil society. Each program area features different program elements, as shown in table 1.

USAID, NED, and State Roles and Responsibilities Related to Democracy Assistance Overseas

Multiple bureaus and offices in USAID and State, as well as NED, provide funding for democracy assistance programs, as shown in table 2. USAID provides democracy assistance through contracts, grants, and cooperative agreements, while NED provides democracy assistance only through grants. INL was the only State bureau that reported providing a significant amount of democracy assistance through contracts in addition to grants and cooperative agreements, while other bureaus primarily use grants and cooperative agreements.

USAID, NED, and State Democracy Assistance Funding during Fiscal Years 2012 through 2016

Combined allocations for democracy assistance administered by USAID and State ranged from about $2 billion to about $3 billion per year, and NED funding ranged from about $100 million to about $170 million annually during fiscal years 2012 through 2016, as shown in figure 1.

USAID’s and State’s combined allocations for democracy assistance varied by account in fiscal years 2012 through 2016. Economic Support Fund was the largest account ranging from 50 to 63 percent of the total in fiscal years 2012 through 2016, as shown in figure 2.

Laws, Regulations, and Polices Relevant to Award- Type Decisions

The following laws, regulations, and policies are related to agencies’ decisions to use a contract, grant, or cooperative agreement to implement democracy assistance programming:

According to the Federal Grant and Cooperative Agreement Act of 1977, one of the purposes of the act is to promote a better understanding of government expenditures and help eliminate unnecessary administrative requirements on recipients of government awards by characterizing the relationship between executive agencies and contractors, states, local governments, and other recipients in acquiring property and services and in providing government assistance. The act provides agencies with criteria to be considered when making award-type decisions, including the intended nature of the relationship between the agency and recipient, as well as whether the principal purpose of the award is to benefit the federal government or to transfer a thing of value to a recipient to carry out a public purpose of support or stimulation authorized by law.

The Competition in Contracting Act of 1984 requires agencies to obtain full and open competition for contracts through the use of competitive procedures in procurements unless otherwise authorized by law.

The Federal Acquisition Regulation (FAR) establishes uniform policies and procedures for all executive agencies for acquisition through contracts. For example, the FAR includes policies and procedures to promote the requirement to obtain full and open competition for contracts. It defines the circumstances under which it is permissible for agencies to limit competition for contracts, including when there is an unusual or compelling urgency or when doing so is necessary for reasons of public interest or national security.

The Office of Management and Budget’s “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” as codified in the Code of Federal Regulations (C.F.R.), establishes government-wide requirements for federal agencies administering grants and cooperative agreements with nonfederal entities. This regulation includes policies and procedures for award elements, including monitoring and reporting as well as cost sharing.

USAID established agencywide guidance for making award-type decisions in its Automated Directives System (ADS), Chapter 304 (ADS 304). In addition to referencing the criteria established in the Federal Grant and Cooperative Agreement Act, this ADS guidance lists indications for when a specific award type should be used and also identifies factors that should not be primary considerations in making award-type decisions. According to USAID guidance, agreement officers and contract officers are individuals representing the U.S. government who are responsible for documenting the final determination of award-type decisions. USAID further outlines policies and procedures for administration of grants and cooperative agreements in ADS Chapter 303 (ADS 303) and for contracts in ADS Chapter 302 (ADS 302).

State also established agencywide guidance for making award-type decisions in its Federal Assistance Directive. It references relevant legislation and instructs contracting and agreement officers to consult with State’s Office of the Procurement Executive if disagreements regarding award-type decisions arise.

The Consolidated Appropriations Act, 2016, required USAID and State to each establish guidelines for clarifying program design and objectives for democracy programs, including the use of contracts versus grants and cooperative agreements, for programs carried out with funds appropriated by the act. For more information on USAID and State guidance related to award-type decisions, see appendix III.

USAID’s Award Process and Award Life Cycle

USAID officials are to make award-type decisions based on applicable laws, regulations, and policies, some of which are described above. Figure 3 provides an overview of the considerations in making this determination based on USAID guidance.

ADS 304 provides the following definitions and guidance to USAID personnel as to what award type to select:

A contract is a mutually binding legal instrument in which the principal purpose is the acquisition, by purchase, lease, or barter, of property or services for the direct benefit or use of the federal government, or in the case of a host country contract, the host government agency that is a principal, signatory party to the instrument. According to ADS 304, USAID personnel shall use a contract when the principal purpose of this legal relationship is the acquisition of property or services for the direct benefit of a federal government agency.

A grant is a legal instrument used when the principal purpose is the transfer of money, property, services or anything of value to a recipient in order to accomplish a public purpose of support or stimulation authorized by Federal statute and when substantial involvement by USAID is not anticipated. USAID personnel are instructed to use a grant when the principal purpose of the relationship with an awardee is to transfer money, property, services, or anything of value to that awardee to carry out a public purpose of support or stimulation authorized by federal statute; and the agency does not anticipate substantial involvement between itself and the awardee during the performance of the activity.

A cooperative agreement is a legal instrument used when the principal purpose is the transfer of money, property, services, or anything of value to a recipient in order to accomplish a public purpose of support or stimulation authorized by federal statute and when substantial involvement by USAID is anticipated. According to ADS 304, USAID personnel must use a cooperative agreement when the principal purpose of the relationship with an awardee is to transfer a thing of value to that awardee in order to carry out a public purpose; and the agency anticipates substantial involvement between itself and the awardee during the performance of the activity. The active engagement of USAID officials with awardees in certain programmatic elements of a project constitutes substantial involvement. Such activities include approval of the awardee’s implementation plan and of specified key personnel.

In addition to awarding contracts, grants and cooperative agreements to private organizations (such as a for-profit business or a nongovernmental organization), USAID makes awards to federal agencies and public international organizations. Under USAID guidance, a public international organization is an international organization composed principally of countries or other related organizations designated by USAID. USAID maintains a list of public international organizations and international agricultural research centers that are considered public international organizations. These organizations include the United Nations and related organizations, such as the Food and Agriculture Organization, and international financial institutions, such as the World Bank Group. USAID officials noted that public international organizations normally receive grants.

Under USAID guidance, awards to public international organizations and interagency agreements do not require the same award-type decisions as those required by ADS 304 for contracts, grants, and cooperative agreements. Awards made to public international organizations are governed by USAID guidance separate from the guidance that applies to awards to other types of organizations, and interagency agreements are governed by guidance separate from contracts, grants, and cooperative agreements.

According to USAID’s guidance, the award-type decision should occur early in the preaward stage within the life cycle of an award. Award type- decisions impact other elements of awards because different regulations and guidance are applicable based on award type. For example, competition and oversight requirements differ for contracts compared with grants and cooperative agreements. Similarly, award-type decisions affect whether the recipient of an award is eligible to make a profit. The award life cycle contains preaward and award implementation stages, as shown in figure 4.

USAID Obligated $5.5 Billion and NED Obligated $610.2 Million in Democracy Assistance Funding; Total Funding State Obligated Cannot Be Reliably Determined

During fiscal years 2012 through 2016, USAID obligated $5.5 billion and NED obligated $610.2 million in democracy assistance funding, and the total such funding that State obligated cannot be reliably determined. In providing democracy assistance, USAID obligated more through grants and cooperative agreements combined than contracts, but its obligations through different award types varied by fiscal year and DRG program area. NED provided democracy assistance only through grants, and its obligations remained generally constant by fiscal year but varied by DRG program area. State bureaus that were able to provide reliable data provided democracy assistance primarily through grants and cooperative agreements. INL was the only State bureau that reported providing a significant amount of democracy assistance through contracts in addition to grants and cooperative agreements, but INL was one of the three State bureaus unable to provide reliable data.

USAID Obligated $5.5 Billion in Democracy Assistance through Contracts, Grants, and Cooperative Agreements

USAID Obligated About Two- Thirds of Its Democracy Assistance Funding through Contracts and Cooperative Agreements, and One-Third through Grants to Public International Organizations

USAID obligated $5.5 billion in democracy assistance funding during fiscal years 2012 through 2016, about 31 percent through contracts; about 33 percent through cooperative agreements; about 4 percent through grants, excluding grants to public international organizations (PIO); and about 32 percent through grants to PIOs. Of the $5.5 billion in democracy assistance, USAID obligated over $1.7 billion of all its democracy assistance through grants to PIOs. The three countries for which USAID obligated the most funds for democracy assistance projects were Afghanistan, Iraq, and South Sudan. Democracy assistance projects in Afghanistan received over $2 billion or 37 percent of USAID’s total democracy assistance obligations during fiscal years 2012 through 2016. Moreover, two grants to the World Bank for the Afghanistan Reconstruction Trust Fund totaling $1.5 billion during fiscal years 2012 through 2016 accounted for 85 percent of the total democracy assistance funds USAID obligated through grants to PIOs during that period.

For both total obligations and number of awards, USAID awarded more of its democracy assistance through grants and cooperative agreements combined than through contracts, as shown in figure 5.

Contracts and cooperative agreements each accounted for roughly one- third of total obligations, while grants, excluding those to PIOs, accounted for 4 percent of total obligations during fiscal years 2012 through 2016. Excluding grants to PIOs, the number of grants and obligations for grants on average were significantly less than cooperative agreements, as shown in table 3.

USAID’s democracy assistance obligations through contracts, grants, and cooperative agreements have varied during fiscal years 2012 to 2016, with significant increases in USAID’s obligations through grants to the World Bank in fiscal years 2012 and 2015, as shown in figure 6. These increases were driven by two large grants to the World Bank for the Afghanistan Reconstruction Trust Fund. Specifically, the World Bank received more than $820 million in fiscal year 2012 and more than $360 million in fiscal year 2015. During fiscal years 2012 to 2016, the World Bank accounted for 93 percent of grants to PIOs. For more details on USAID obligations through different award types by fiscal year and DRG program area, see appendix IV.

USAID’s democracy assistance obligations for good governance varied the most compared with the other three DRG program areas, rule of law and human rights, political competition and consensus-building, and civil society, as shown in figure 7. This variation was again due to two large grants to the World Bank for the Afghanistan Reconstruction Trust Fund, which were categorized under good governance.

As shown in figure 8, USAID provided more democracy assistance in the area of good governance, over $2 billion more than the next largest program area. Excluding USAID obligations through grants to PIOs, USAID obligated more democracy assistance through contracts than through grants and cooperative agreements combined for the two program areas of good governance and rule of law and human rights. For the two other program areas—civil society and political competition and consensus-building—USAID obligated less through contracts.

NED Obligated Over $610.2 Million in Democracy Assistance Funding through Grants

NED obligated over $610.2 million in democracy assistance funding through a single award type—grants—during fiscal years 2012 through 2016. The three countries for which NED obligated the most funds for democracy assistance are in Eurasia and Asia. NED’s obligations remained generally constant in the past few fiscal years, as shown in figure 9.

NED’s approved funding varied across the four DRG program areas. According to NED officials, NED does not maintain obligations data for awards by DRG program areas, as defined by USAID and State. Therefore, NED categorized its grants into DRG program areas for projects when funds were approved rather than when funds were obligated to provide a general sense of funding by DRG program area. NED approved the most funding in the area of good governance followed closely by political competition and consensus-building and then by civil society. NED’s approved funding in all program areas, except for civil society, increased over the years, as shown in figure 10.

State Reported Obligating About $3 Billion in Democracy Assistance through Grants, Cooperative Agreements, and Contracts, but Data for Roughly Half of State’s Obligations Were Unreliable

State reported obligating approximately $3 billion in democracy assistance funding during fiscal years 2012 through 2016 primarily through grants and cooperative agreements, but also through contracts. Seven of 10 State bureaus that were able to provide reliable data obligated $1.7 billion primarily through grants and cooperative agreements; the remaining three bureaus that were unable to provide reliable data reported obligating about $1.4 billion through all three award types.

Seven State Bureaus Providing Reliable Data Obligated $1.7 Billion in Democracy Assistance Funding Primarily through Grants and Cooperative Agreements

The seven State bureaus that were able to provide reliable data collectively obligated $1.7 billion for fiscal years 2012 through 2016 primarily through grants and cooperative agreements, as shown in table 4. Of these State bureaus, the Bureau of Democracy, Human Rights, and Labor obligated the most with about $1.2 billion in democracy assistance through 547 grants and 56 cooperative agreements for that period. The three regions for which the Bureau of Democracy, Human Rights, and Labor obligated the most funds for democracy assistance were the Near East, East Asia and Pacific, and the Western Hemisphere.

Three State bureaus—INL, EUR, and SCA—were unable to provide reliable data on democracy assistance obligations for fiscal years 2012 through 2016. Collectively, these three bureaus reported obligating about $1.4 billion in democracy assistance during this period: INL, about $1.1 billion; EUR, about $150 million; and SCA, about $160 million. INL was the only State bureau that reported providing a significant amount of democracy assistance through contracts in addition to grants and cooperative agreements.

We deemed data from these three bureaus unreliable because the data were incomplete, nonstandard, or inaccurate. For example, INL did not provide democracy assistance data for Colombia, Egypt, and Kenya until we identified these countries as potentially missing based on our comparison of INL data with USAID data. According to data INL subsequently provided, the democracy assistance projects in these three countries received about $49 million of the approximately $1.1 billion in democracy assistance obligated by INL in fiscal years 2012 through 2016. According to INL officials, the initial data INL provided did not include records of awards for these countries because awards were miscoded when the data were entered; for example, some awards were coded under the broad category of law enforcement rather than under specific DRG program areas. According to INL officials, this erroneous law enforcement code was used for all of Colombia’s programs and for some programs in other countries such as Egypt and Kenya. According to INL officials, for two additional countries, Tunisia and Morocco, the regional post did not always use codes associated with DRG program areas or personnel entered incorrect codes.

INL also provided incomplete data for multiple data fields, including the dates for periods of performance. INL was missing the start date for 74 percent of records and the end date for almost 75 percent of records for fiscal years 2012 through 2015. A September 2014 State Office of Inspector General report on INL found, among other things, that because State’s budgeting and accounting systems are not designed to manage foreign assistance, INL staff were required to engage in time-consuming, inefficient, and parallel processes to track the bureau’s finances. According to INL officials, INL has made improvements in its data since the Inspector General report was published. However, INL was missing the start date for 69 percent of records and the end date for almost 71 percent of records for fiscal year 2016. According to INL, data fields such as these were incomplete because contract officers and agreement officers were not required to enter values for these data fields into State systems until October 2016.

EUR and SCA also initially provided incomplete, inaccurate, or nonstandard data for multiple data fields. According to State officials, this was due to manual data entry and transfer errors. For example, dates were in various formats and recipient names were sometimes listed in the field intended for recipient categories, which did not allow for the systematic analysis of records. While EUR generally provided more complete and standard data for fiscal year 2016 compared with fiscal years 2012 through 2015, EUR still provided nonstandard codes to identify award subtype for 5.3 percent of its fiscal year 2016 records. For example, “ESF,” an abbreviation for the Economic Support Fund, was listed as the award subtype for multiple contracts.

Furthermore, we identified 145 duplicate EUR records. EUR officials in Washington, D.C., noted that some of the duplicates resulted from their efforts to validate the data they had collected from staff in each country. Subsequently, these officials—who manually merged, analyzed, and validated data to correct it—identified additional duplicates beyond the 145 that we had identified. According to EUR officials, the bureau’s obligation data for democracy assistance awards were maintained in separate databases at posts, rather than in a centralized database. In validating the data they had collected, EUR officials identified duplicate records amounting to at least 5 percent of the records during fiscal years 2012 through 2016. On the basis of our independent analysis of the same dataset, we were able to confirm that about 4 percent of the EUR records were duplicate records. Data on democracy assistance awards are maintained in the countries where the awards are made. To obtain award level data, EUR headquarters personnel had to ask staff in each country to manually compile and report award data.

In addition, SCA did not initially provide data for Afghanistan and Pakistan, including award-type data. Records associated with these two countries accounted for about 92 percent of SCA’s total democracy assistance funding. We identified these countries as potentially missing based on our comparison of SCA data with USAID data. SCA subsequently provided the missing data on democracy assistance awards made in Afghanistan and Pakistan; the data resided within a separate database.

SCA democracy assistance awards are allocated across three offices within SCA and EUR, and information regarding democracy assistance programs is not currently managed through a centralized database. According to SCA officials, due to the lack of a centralized database, they would need to carefully coordinate across the three offices. However, despite the coordination efforts of these offices, SCA did not include Afghanistan and Pakistan in their initial submission of data to us, and the additional data SCA subsequently submitted through EUR for Central Asia still contained nonstandard and missing values.

A June 2017 State Office of Inspector General report determined that State cannot obtain timely and accurate data necessary to provide central oversight of foreign assistance activities and meet statutory and regulatory reporting requirements. For example, the report said that State cannot readily analyze its foreign assistance by country or programmatic sector. Similarly, we found that State cannot readily analyze its foreign assistance agencywide by country or for its DRG portfolio since INL, EUR, and SCA did not provide reliable DRG award data, including incomplete or duplicative data associated with certain countries. According to the report, this lack of data hinders State’s leadership from strategically managing foreign assistance resources, identifying whether programs are achieving their objectives, and determining how well bureaus and offices implement foreign assistance programs. In September 2014, State began the Foreign Assistance Data Review to better understand and document issues with its agencywide data and multiple budget, financial, and program management systems, but State does not plan to complete its Foreign Assistance Data Review until fiscal year 2021. The Consolidated Appropriations Act, 2016, requires State to report on its use of the various award types, and the Office of Management and Budget’s Bulletin No. 12-01 requires State to report quarterly on its foreign assistance activities. Given these reporting requirements, State would not be able to provide accurate and complete data on democracy assistance unless INL, EUR, and SCA took immediate steps to address their data deficiencies. Federal internal control standards call for agencies to use quality information from reliable sources to achieve intended objectives and to effectively monitor activities. Without reliable democracy assistance data from all relevant bureaus, State cannot effectively monitor its democracy assistance programming and report reliable data externally.

USAID Generally Lacked Complete and Timely Documentation of Award-Type Decisions

USAID generally did not document award-type decisions in a complete and timely manner for the awards in our sample. Specifically, USAID provided complete and timely documentation of the award-type decision for 5 of the 41 awards we reviewed. For the remaining 36 awards, the documentation was either incomplete, not timely, or both. According to ADS 304, contract and agreement officers must determine whether to use a contract, grant, or cooperative agreement, including a rationale based on criteria outlined in the Federal Grant and Cooperative Agreement Act.

USAID Did Not Have Complete Documentation of Award-Type Decisions for 14 of the 41 Awards in Our Sample

Consistent with the requirements of ADS 304, USAID personnel documented the rationale for using a contract, grant, or cooperative agreement for 27 of the 41 awards we reviewed. As table 5 shows, the number of awards in our sample with complete and incomplete documentation of the award-type decision varies by award type.

ADS 304 requires contract and agreement officers to document the selection of an award type, including the rationale for the award-type decisions based on the requirements of the Federal Grant and Cooperative Agreement Act. USAID provided documentation of the award-type decision for 31 of the awards in our sample but lacked such documentation for 10 awards. However, for 4 of the 31 awards with documentation of the award-type decision, the documentation was not complete because it did not include a rationale for choosing between grants, cooperative agreements, and contracts on the basis of criteria in the Federal Grant and Cooperative Agreement Act, as required by USAID guidance.

The documentation of the award-type decision for these 4 awards, which were all contracts, outlined the rationale for selecting a particular type of contract, information that is required by the FAR. However, the documentation for these 4 awards did not address the decision to use a contract rather than a grant or cooperative agreement, including a rationale based on the requirements outlined in the Federal Grant and Cooperative Agreement Act, as required by ADS 304. For example, documentation for one contract provided a rationale for selecting a firm- fixed-price contract based on the level of risk, which is in accordance with requirements of the FAR. However, the documentation did not indicate the rationale for deciding to use a contract rather than a grant or cooperative agreement as required by ADS 304. Without documentation of the rationale for award-type decisions as required under USAID guidance, USAID cannot demonstrate that award-type decisions are made based on the requirements outlined in the Federal Grant and Cooperative Agreement Act.

USAID Lacked Timely Documentation of Award- Type Decisions for 25 of the 31 Awards for Which It Provided Documentation

For the 31 awards in our sample for which USAID provided documentation of the award-type decision, 6 met the timeliness standard set by USAID guidance, and 25 did not, as shown in table 6. While 5 award-type decisions were both timely and complete, one award that met the timeliness standard lacked a required component.

According to ADS 304, contract and agreement officers must document the final award-type decision before a solicitation is issued or before USAID initiates communications with a potential sole source recipient. We found that 25 awards lacked timely documentation of the award-type decision because the decision was documented after the solicitation was issued or timeliness was indeterminate because the documentation lacked a date or other indication of when in the process this determination was documented. Without this, we could not determine whether the award-type decisions were documented prior to solicitation or before USAID initiated communications with a potential sole source recipient. Instances in which final award-type decisions were documented after the issuance of a solicitation or communication with a potential sole source recipient include the following:

Solicitation for one of the contracts in our sample occurred in 2011, but the award-type decision was not documented until 2013.

The award-type decision for one of the grants in our sample was documented after the grant was awarded, which occurs after the solicitation is issued.

Solicitation for one cooperative agreement in our sample occurred in 2010, but the award-type decision was not documented until 2012.

According to USAID officials, the agency’s practice prior to October 2016 was to include award-type decisions in a comprehensive document that was intended to record all key decisions made throughout the award process. This document was finalized at the end of the award process. However, USAID officials also stated that they have introduced new processes and procedures, including making updates to relevant guidance, templates, and instructions that they believe will result in more timely and complete documentation of award-type decisions. Specifically, in 2016 USAID issued an update to ADS 304 that includes examples of when to use contracts, grants, and cooperative agreements and provides additional information about the legal framework for making award-type decisions. In 2017, USAID also issued revised templates to guide the documentation of award-type decisions. According to USAID officials, in addition to clarifying the ADS 304 guidance and developing new templates, USAID is also developing specific guidance for DRG programs that it expects to release at a future date. For additional information about this DRG-specific guidance, see app. III.

USAID has taken steps to improve documentation for award-type decisions by updating its guidance and templates but has not assessed whether these updates have resulted in timely and complete documentation of award-type decisions. USAID officials stated that assessments are conducted at the sub-bureau or mission level, rather than by specific sectors, such as for DRG programs. As a result, USAID officials do not have plans to assess whether the newly updated processes and procedures have resulted in more timely documentation of DRG award-type decisions. It is important that USAID document the award-type decision before it publishes a solicitation for the award because award-type decisions impact other award elements, such as the requirements for competition and oversight and whether profit is permissible under the award. Until USAID assesses its updated processes and procedures, it cannot know if the steps it has taken have resulted in complete and timely documentation of award-type decisions as required by USAID guidance.

USAID Contracts Differed from Grants and Cooperative Agreements for Selected Award Elements

For the awards in our sample, contracts generally differed from grants and cooperative agreements in terms of competition, scope of work, cost sharing and profit, and oversight requirements, among other characteristics. We identified differences in three award elements— competition, cost sharing and profit, and oversight requirements—that were generally consistent with the unique requirements provided for in procurement regulations and agency guidance. We also identified differences between the award types with regard to scope of work, and found certain activities were conducted under all three award types.

USAID Used Competition Procedures for a Greater Proportion of Contracts than for Grants and Cooperative Agreements in Our Sample, due to Differences in Award Types’ Applicable Legal Frameworks

USAID awarded most, but not all, of the contracts in our sample using full and open competition, according to USAID data. Different federal and USAID requirements are in place regarding the use of competition procedures to award contracts than apply to grants and cooperative agreements. In accordance with the FAR, executive agencies such as USAID are required to promote and provide for full and open competition in awarding contracts, with only limited exemptions.

USAID did not require full competition for any of the grants in our sample and required it for only about one-third of the cooperative agreements, according to USAID data. For the 41 awards in our sample, table 7 shows how many of each award type used full competition, limited competition, or no competition, based on USAID data.

Below are examples of the rationale USAID provided for limiting competition for selected contracts, grants, and cooperative agreements:

USAID limited competition for one of the contracts in our sample because of potential impairment to a foreign aid program, and another contract was limited to local competitors. This exemption to full and open competition is based on a unique statutory authority available to USAID and other agencies operating foreign assistance programs, which has been implemented in the USAID Supplement to the FAR. USAID also exempted one of the contracts in our sample from full and open competition using a provision in the FAR that allows for solicitation from a single source when the purchase falls below a threshold of $150,000. However, USAID officials indicated that they erroneously cited FAR 13.106-1(b), which permits sole source awards for acquisitions not exceeding the simplified acquisition threshold if only one source is reasonably available, when they should have cited FAR 13.501(a)(2)(i), which permits sole source acquisitions of commercial items (including brand-name items) for acquisitions greater than $150,000.

For two of the grants in our sample, USAID limited the awards to local competition, according to USAID officials.

For one cooperative agreement in our sample, competition was limited, according to USAID data, but USAID did not provide additional information on how the award competition was limited. The recipient of this award had submitted an unsolicited application, which under ADS 303, may be included in a relevant competition for an award, if USAID finds that the unsolicited application reasonably fits an existing program. USAID found that this unsolicited application was responsive to an existing solicitation and thus provided no additional justification.

For more information on the rationales USAID used to exempt contracts, grants, and cooperative agreements in our sample from full and open competition, see appendix V.

Contracts More Often Included a Greater Number of Activities Working with Host-Country Governments or Other National Institutions, While Grants and Cooperative Agreements More Often Included a Greater Number of Activities Working with Civil Society Organizations

We found that the scope of work for contracts, grants, and cooperative agreements included similar types of activities. We also found that contracts more often included a greater number of activities working with the host-country government or other major national institutions, and grants and cooperative agreements more often included a greater number of activities working with civil society organizations.

Seven of the 13 contracts in our sample included more activities focused on engaging with host-country governments and national institutions, while only 2 of the 13 contracts included more activities focused on engaging civil society organizations. Grants and cooperative agreements, by contrast, more often included a greater number of activities to support civil society organizations and media organizations than government or major national institutions of the country of performance. Three of the 5 grants in our sample included more objectives or activities focused on engaging civil society organizations, rather than engaging with host government or other major national institutions, while none of the grants included more objectives or activities related to the host government or other major national institutions. Cooperative agreements slightly more often included a greater number of objectives or activities to engage civil society organizations than they did to work with host government and national institutions, with 9 cooperative agreements including more objectives or activities focused on engaging civil society organizations and 7 with more objectives or activities focused on engaging host governments or other national institutions.

Below are some examples of the activities and types of parties engaged with as stated in the awards in our sample:

One contract in our sample provided various advisors to assist the government of a foreign country in implementing transparent policies, laws, and systems to strengthen public financial management and provide for a well-regulated financial sector, among other things. For more information on program objectives for selected democracy assistance awards by contract type, see appendix VI.

A grant in our sample sought to increase the capacity of civil society organizations and the media to promote transparent democratic elections and political processes, among other things. Activities under the scope of work for this award included building alliances with stakeholders, conducting election-day observations, and analyzing electoral results.

A cooperative agreement in our sample was intended to support a political transition through, among other things, organizational capacity development and grant-making opportunities for civil society organizations working to raise awareness about electoral events.

In addition, for our award sample, we found that activities such as technical assistance, training, and local capacity building were conducted under grants, cooperative agreements, and contracts.

Estimated Profits Ranged from 1 to 6 Percent of Estimated Contract Cost; Cost Sharing Ranged from Less Than 1 to 74 Percent of Total Value of Grants and Cooperative Agreements

Eight of the 13 contracts in our sample were cost-plus-fixed-fee contracts, under which the contractor is reimbursed its costs in implementing the program in addition to a fee (profit) that is fixed at the outset. For these 8 contracts, the estimated percentage of profit ranged from about 1 to 6 percent of the estimated contract cost. According to the FAR, under cost-plus-fixed-fee contracts, the fee cannot exceed 10 percent of the contract’s estimated cost excluding fee. The average estimated fixed fee percentage for these contracts was about 5 percent of the estimated contract cost.

While USAID contracts may be structured to provide for contractor profit in accordance with the FAR, USAID guidance does not allow profit under grants and cooperative agreements. For the grants and cooperative agreements in our sample, the awards did not specifically provide any fee (profit), and the awardees often agreed to contribute to the cost of the program through cost sharing. In addition, USAID guidance identifies cost sharing—whereby an awardee contributes to the total cost of an agreement—as an important element of the USAID-awardee relationship for grants and cooperative agreements. According to this guidance, although there is no general requirement for the awardees of grants and cooperative agreements to share in providing the costs of programs, cost sharing can be a mechanism to help awardees build their organizational capacity. For the awards in our sample, USAID included provisions for cost sharing in 3 of the 5 grants, and the awardees agreed to contribute about 11 percent, 13 percent, and 74 percent of the respective total award funding, including the cost share amount. USAID also included cost sharing provisions in 10 of the 23 cooperative agreements, with the awardee contribution ranging from less than 1 percent to 36 percent of the total award funding, including the cost share amount. All of the grants and cooperative agreements that included cost sharing provisions were awarded to nonprofit organizations, according to USAID data. Some of these awardees agreed to contribute to cost sharing by covering in-kind costs, such as donated time from volunteer legal specialists, and others agreed to contribute cash to cover some of the direct costs of implementing programs, such as personnel and benefits.

According to USAID officials, cost sharing is rarely used under USAID contracts because under a cost sharing contract the contractor agrees to absorb a portion of its costs in expectation of substantial compensating benefits, such as certain research and development efforts, and these circumstances rarely occur under USAID’s programming. USAID did not include cost sharing provisions in any of the 13 contracts in our sample. For additional information about profit in our sample, see table 8.

Table 9 provides additional information about cost sharing under the awards in our sample.

Below are some examples of profit and cost sharing arrangements included in contracts, grants, and cooperative agreements in our sample:

A contract in our sample sought to, among other things, improve the access of vulnerable and disadvantaged populations to the country’s legal system by engaging in activities such as working to build the capacity of government and civil society organizations to be more responsive to the needs of these populations. Under this award, the contractor was to receive approximately $1.7 million in profit, which was 4 percent of the estimated value of the award.

The awardee for a grant in our sample agreed to provide $2.1 million of the program costs, about 74 percent of the total cost of the program, which sought to develop public opinion survey research capacity in the host country, among other things. USAID’s grant to this awardee funded additional support for the program, which the awardee was already executing prior to USAID assistance.

A cooperative agreement in our sample included a requirement for the awardee to contribute about 9 percent of program expenditures, or about $3 million, for a program that sought to improve access to health services, as well as strengthen health delivery systems and health governance.

Contracts Had Different Oversight and Evaluation Requirements Than Grants and Cooperative Agreements, due to Differences in Award Types’ Applicable Legal Frameworks

We found that USAID oversight requirements differed for contracts compared with grants and cooperative agreements for the awards in our sample. This is because contracts (1) at times required more frequent reporting and (2) more often required evaluations of the contractor’s performance.

Reporting requirements: We found that while most awards in our sample required quarterly financial and performance reporting, some contracts required these reports to be submitted monthly. USAID required quarterly financial and performance reporting for the majority of grants and cooperative agreements in our sample. None of the grants or cooperative agreements in our sample included requirements for financial reporting more frequently than quarterly, and no grants and only one cooperative agreement included a more frequent performance reporting requirement.

According to Title 2 of the Code of Federal Regulations (C.F.R.), Section 200.327, under grants and cooperative agreements, financial reports must be collected by agencies with the frequency required by the award, but no less frequently than annually and no more frequently than quarterly, except in unusual circumstances, such as where more frequent reporting is necessary for effective monitoring of the award. USAID officials confirmed that there would have to be a reason to justify quarterly or more frequent reporting requirements for grants or cooperative agreements. For example, considerations related to risk could result in the need for more frequent reporting for grants and cooperative agreements.

Table 10 shows the financial and performance reporting requirements for the contracts, grants, and cooperative agreements in our sample.

Evaluations of performance: For the majority of contracts in our sample, USAID included provisions for evaluation of the contractor’s performance at the conclusion of performance. According to the FAR, evaluations of a contractor’s performance shall be prepared at the time the work under the contract is completed, and, for contracts longer than 1 year, interim evaluations should be prepared at least annually. USAID officials indicated that there is no similar government-wide or USAID requirement for grants and cooperative agreements. None of the grants and only a few of the cooperative agreements in our sample included such evaluation provisions. However, USAID officials noted that, in accordance with USAID policy, the past performance of a potential awardee is considered in conducting risk assessments for grants and cooperative agreements.

Table 11 shows the number of USAID contracts, grants, and cooperative agreements in our sample that included provisions for evaluation of the contractor or awardee’s performance.

For most of the contracts in our sample, award documentation indicated that the contractor’s performance would be assessed on a variety of factors such as quality of service, cost control, timeliness of performance, and effectiveness of key personnel. These evaluations form the basis of the contractor’s performance record for the contract. Only one contract in our sample had no requirement for a performance evaluation of the contractor, and that award was for the rental of a hotel ballroom and related services for an event.

For three of the cooperative agreements in our sample that included provisions for the evaluation of the awardee’s performance, the award documentation indicated that USAID officials were to ensure prudent management of the award and to make the achievement of program objectives easier by, among other things, evaluating the awardee and its performance. One cooperative agreement included a provision that USAID will fund or conduct an external midterm evaluation during the second year of the project. For the one remaining cooperative agreement with an evaluation provision, documentation indicated that the evaluation would be used to inform a decision about a potential follow-on award.

Conclusions

Democracy assistance has been a key component of U.S. foreign assistance, supporting activities related to rule of law and human rights, good governance, political competition and consensus-building, and civil society. USAID and State together have allocated about $2 billion annually for democracy assistance in fiscal years 2012 through 2016. USAID’s information systems enable it to track and report the amount of democracy assistance funding through contracts, grants, and cooperative agreements. However, State lacks the ability to provide comparable agencywide data. The quality of democracy assistance award data provided by 10 State bureaus and offices varied, and three of these bureaus were unable to provide reliable data. Of the State bureaus, INL is the only bureau that regularly makes use of contracts, and it provided unreliable data. Without reliable data from INL, State cannot accurately report on its use of the various award types. In addition, since EUR’s and SCA’s award data are maintained across embassies, offices, and the two bureaus, opportunities for data errors may increase when regional data needs to be compiled. Without reliable data from all relevant bureaus, State cannot be sure that it is fully and accurately reporting on democracy assistance awards, which limits, among other things, congressional oversight of democracy assistance funding.

While USAID requirements for complete and timely documentation of award-type decisions have existed since at least 2011, for our sample of 41 USAID awards for which an award-type decision was required, only 5, or about 12 percent, had both complete and timely documentation of the award-type decision. USAID recently introduced processes and procedures to improve the documentation of these decisions. However, until USAID assesses its updated processes and procedures, it cannot know if the changes resulted in award-type decisions being documented in a complete and timely manner, as required by its guidance, or if additional steps are needed.

Recommendations for Executive Action

We are making three recommendations, two to State and one to USAID.

The Secretary of State should direct the Bureau of International Narcotics and Law Enforcement Affairs to identify and address factors that affect the reliability of its democracy assistance data, such as miscoded or missing data. (Recommendation 1)

The Secretary of State should direct the Director of the Office of U.S. Foreign Assistance Resources to implement a process to improve the reliability, accessibility, and standardization of democracy assistance data across the geographic regions of the Bureaus of European and Eurasian Affairs and South and Central Asian Affairs, such as utilizing a centralized database for award data. (Recommendation 2)

The USAID Administrator should direct the Office of Acquisition and Assistance to assess whether current processes and procedures as outlined in revised guidance result in complete and timely documentation of award-type decisions for democracy assistance. (Recommendation 3)

Agency Comments and Our Evaluation

We provided a draft of this report to State, USAID, and NED for review and comment. State, USAID, and NED provided technical comments on the draft, which we incorporated as appropriate. State and USAID also provided written comments in letters that are reproduced in appendices VII and VIII, respectively. In their written comments, both State and USAID concurred with our recommendations. State also requested that the report provide more information about its commitment and efforts to improve accountability of foreign assistance under its Foreign Assistance Data Review process. We have added more details about these efforts, including a discussion of State’s recent report to Congress on the outcomes of Phases One and Two of its four-phase review, which is expected to be completed in fiscal year 2021. State’s letter also described other efforts to improve the quality and accessibility of data at the bureau- level and at posts.

In its written comments, USAID stated that it will take steps to assess documentation of award-type decisions and planned to complete this assessment by September 30, 2018. USAID also underscored certain details regarding required documentation of award-type decisions for some awards in our sample of 41 USAID democracy assistance awards. USAID noted that three contracts in our sample consisted of task orders, which do not require award-type decision documentation separate from their base awards under USAID guidance, according to agency officials. The draft report included these details, and we added more information to the report to further clarify them.

We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of the U.S. Agency for International Development, and the President of the National Endowment for Democracy. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-3149 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 key contributions to this report are listed in appendix IX.

Appendix I: Objectives, Scope, and Methodology

This report (1) examines funding that the U.S. Agency for International Development (USAID), National Endowment for Democracy (NED), and U.S. Department of State (State) obligated for democracy assistance through contracts, grants, and cooperative agreements; (2) evaluates USAID documentation of award-type decisions; and (3) compares USAID contracts with grants and cooperative agreements across selected award elements.

To examine funds obligated by USAID, NED, and State for democracy assistance by award types, we obtained data on awards that USAID, NED, and State administered during fiscal years 2012 through 2016 under the Democracy, Human Rights, and Governance (DRG) portfolio. The data we obtained included awards to public international organizations (PIO). However, awards to PIOs are governed by USAID guidance separate from the guidance that applies to awards to other types of organizations. The data we obtained also included interagency agreements. However, interagency agreements are governed by separate USAID guidance that does not require the same award-type decision as when agencies obligate funds to entities through contracts, grants, and cooperative agreements. We analyzed the award data for fiscal years 2012 through 2016 but did not include fiscal year 2011 data in our analysis because State did not consistently track obligations data at the award level prior to fiscal year 2012, according to State officials. We assessed the reliability of these data by reviewing related documentation; interviewing knowledgeable officials; and conducting electronic or manual data testing for missing, nonstandard, or duplicative data; among other things. We determined that data provided by USAID, NED, and State, except for data from State’s Bureau of International Narcotics and Law Enforcement Affairs (INL), Bureau of European and Eurasian Affairs (EUR), and Bureau of South and Central Asian Affairs (SCA), were sufficiently reliable for the purposes of our report. For the USAID, NED, and State data that were sufficiently reliable, we analyzed the amount of funding by award type, among other variables. We assessed State’s data reliability challenges against federal internal control standards.

To evaluate USAID’s award-type decisions, we reviewed relevant regulations and agency policies, and we interviewed knowledgeable agency officials about these polices. State and NED were not included in our sample because most State bureaus did not regularly use all three types of awards and NED only provides assistance through grants. In addition, three State bureaus were unable to provide reliable data from which to select a sample. We also selected a roughly proportional, random, nongeneralizable sample of 41 awards—13 contracts, 5 grants, and 23 cooperative agreements. These awards were selected based on characteristics, such as award type, DRG program area, and place of performance. The sample focused on the 14 countries for which USAID obligated the most democracy funding. Democracy assistance projects in these 14 countries received over 70 percent of USAID’s democracy assistance funding. The sample was also limited to contracts, grants, and cooperative agreements that were awarded by USAID in fiscal years 2012 through 2015 because fiscal year 2015 was the most recent fiscal year for which data were available at the time of our sample selection. We excluded (1) grants made to PIOs because these awards are governed by USAID guidance separate from the guidance that applies to awards to other types of organizations; (2) interagency agreements because engaging other federal agencies through interagency agreements does not require the same award-type decision under USAID guidance as when agencies obligate funds to entities through contracts, grants, and cooperative agreements; and (3) awards that fell below the simplified acquisition threshold, which is $150,000, because there are different acquisition procedures allowable for awards that fall below the threshold. For the selected awards, we obtained and analyzed preaward documentation relevant to the award-type decision and evaluated this documentation against the relevant regulations and agency guidance. To ensure accuracy, we cross-checked information from the documentation for the selected awards with USAID’s award data.

In collaboration with subject-matter experts, we selected four award elements—competition, cost sharing and profit, scope of work, and oversight requirements—for a comparison of contracts with grants and cooperative agreements. To compare USAID contracts with grants and cooperative agreements across selected award elements, we obtained and conducted a review of documentation associated with the same sample of 41 USAID awards. Additionally, we obtained information about award recipients from a public database maintained at SAM.gov. Using information collected from the documentation, we analyzed the selected awards’ competition, cost sharing and profit, scope of work, and oversight activities. Subsequently, we reviewed the documentation and applicable legal frameworks, including federal regulations and guidance pertaining to the award elements we selected, to compare differences between award types. We also interviewed relevant agency officials as well as the leading industry organizations that represent implementers of foreign assistance programs to better understand the use of various award types.

We conducted this performance audit from July 2016 to December 2017 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: USAID’s Use of Various Award Types for Democracy Assistance by Place of Performance during Fiscal Years 2012 through 2015

Our nongeneralizable sample of U.S. Agency for International Development (USAID) awards was limited to fiscal years 2012 through 2015 and to the 14 countries for which USAID obligated the most democracy funding, which accounted for over 70 percent of USAID’s democracy assistance funding. Total USAID democracy assistance funding for projects in Afghanistan was greater than for any other country, amounting to almost 39 percent of USAID’s total democracy assistance obligations during fiscal years 2012 through 2015. The total USAID democracy assistance funding for projects in Afghanistan included obligations to public international organizations (PIOs) of more than $827 million in fiscal year 2012, more than $55 million in fiscal year 2013, more than $48 million in fiscal year 2014, and more than $369 million in fiscal year 2015. USAID’s use of award types for democracy assistance varied across these 14 countries during fiscal years 2012 through 2015, as shown in figure 11.

Appendix III: USAID and State Guidance in Response to the Consolidated Appropriations Act, 2016

The Consolidated Appropriations Act, 2016, states that not later than 90 days after enactment of the act, the U.S. Department of State (State) and U.S. Agency for International Development (USAID), following consultation with democracy program implementing partners, shall each establish guidelines for clarifying program design and objectives for democracy programs, including the use of contracts versus grants and cooperative agreements in the conduct of democracy programs carried out with funds appropriated by the act. The joint explanatory statement accompanying the act further elaborated that the act requires the development of guidelines for the use of contracts versus grants and cooperative agreements for the unique objectives of democracy programs, and that the guidelines should assist contracting and agreement officers in selecting the most appropriate mechanism for democracy programs, among other things.

In 2016, USAID released its revised agencywide guidance, Automated Directives System (ADS) Chapter 304 (ADS 304), on how to make award- type decisions between contracts, grants, and cooperative agreements. According to USAID officials, USAID expects to release guidance further clarifying ADS 304 at a future date. USAID intends to issue the guidance after it completes final consultations with implementing partners, the Congress, and other stakeholders. It includes scenarios and examples to further clarify existing government-wide and agencywide guidance. According to USAID officials, in drafting its guidance to further clarify ADS 304, USAID pursued multiple rounds of review within USAID, and with implementing partners, the Congress, and other stakeholders.

According to State, it met the requirement to establish additional guidelines for democracy assistance through State’s release of a Program Design and Performance Management Toolkit in fall 2016 and State’s updating of its Federal Assistance Directive in May 2017. The aim of the Program Design and Performance Management Toolkit was to clarify program design and objectives for foreign assistance programs broadly. The Federal Assistance Directive combined both policies and procedures from the Federal Assistance Policy Directive and the Procedural Desk Guide into one document and clarified appropriate mechanisms for all programs. Although applicable to democracy programs, neither of these actions was specific to democracy programs. According to State, the Bureau of Democracy, Human Rights, and Labor; the Bureau of International Narcotics and Law Enforcement; and other relevant State bureaus that work closely with democracy assistance implementing partners consult regularly with and provide guidance to implementing partners on the use of the guidelines.

Appendix IV: USAID Obligations through Different Award Types by Fiscal Year and Democracy, Human Rights, and Governance (DRG) Program Area

U.S. Agency for International Development (USAID) democracy assistance obligations through different award types varied by fiscal year and DRG program area, as shown in tables 12, 13, and 14.

Appendix V: Regulations and Policy Allowing USAID to Limit Competition for Contracts, Grants, and Cooperative Agreements

Regulations, law, and policy enable the U.S. Agency for International Development (USAID) to limit competition in awarding contracts, grants, and cooperative agreements under certain circumstances. One source of USAID’s authority to limit competition for contracts is the Competition in Contracting Act of 1984, as implemented in the Federal Acquisition Regulation (FAR), which outlines policies and procedures for acquisition by all federal agencies, including policies and procedures pertaining to exemptions from competition. In addition, for contracts awarded under USAID programs, the FAR, among other regulations and legislation, contains specific provisions on exemptions from competition. For grants and cooperative agreements, USAID’s Automated Directives System Chapter 303 outlines circumstances under which competition can be limited.

In accordance with applicable policies, procedures, and guidance, USAID can use some exemptions from competition only for contracts and others only for grants and cooperative agreements. For example, USAID can limit competition for contracts for the sake of public interest or when circumstances are such that competition would compromise U.S. national security; however, according to USAID officials, they rarely have cause to use these grounds for limiting competition. USAID guidance outlines some unique exemptions to competition for grants and cooperative agreements. For example, USAID can exempt follow-on awards, which are the same or substantively similar to recently completed awards, if the awardee will be the same, or can exempt awards from competition in certain instances when USAID has received an unsolicited application.

For the awards in our sample, USAID limited competition for only 3 of the 13 contracts, based on USAID data. However, for one of these contracts, USAID officials indicated that they erroneously cited FAR 13.106-1(b), which permits sole source awards for acquisitions not exceeding the simplified acquisition threshold if only one source is reasonably available, when they should have cited FAR 13.501(a)(2)(i), which permits sole source acquisitions of commercial items (including brand-name items) for acquisitions greater than $150,000. For the exemptions from competition that USAID used for these awards, see table 15.

USAID exempted from full competition all five of the grants and 15 of the 23 cooperative agreements in our sample. Table 16 outlines exemptions from competition that USAID may use for grants and cooperative agreements in our sample.

Appendix VI: Program Objectives of Selected USAID Democracy Assistance Awards by Contract Type

For the contracts in our sample, we found that program objectives varied by type of contract. For example, the firm fixed price award and three of the four indefinite quantity awards in our sample procured goods and services with specific deliverables that were directly for the U.S. Agency for International Development’s (USAID) benefit. Nearly all of the cost- plus-fixed-fee contracts sought to achieve improvements in the public sector of the country of performance through activities such as supporting developments in public policy or strengthening national institutions. For examples of differences in program objectives by contract type in our sample, see table 17.

Appendix VII: Comments from the U.S. Department of State

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

Appendix IX: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Mona Sehgal (Assistant Director), Justine Lazaro (Analyst-in-Charge), Lindsey Cross, Christopher Hayes, Carl Barden, Karen Cassidy, David Dayton, Timothy DiNapoli, Justin Fisher, Alexandra Jeszeck, Heather Latta, Madeline Messick, Natarajan Subramanian, Alex Welsh, and Bill Woods made key contributions to this report.