Foreign Assistance: U.S. Democracy Assistance for Cuba Needs Better Management and Oversight
Released: 2006-11-15T00:00:00

Letter

Background

Conditions in Cuba Pose Substantial Challenges for U.S. Assistance

Conditions in Cuba—a hard-line Communist state that restricts nearly all political dissent—pose substantial challenges to implementing, monitoring, and evaluating democracy assistance. USAID does not work cooperatively or collaboratively with the Cuban government, as it does in most countries receiving U.S. democracy assistance. The United States and Cuba do not have diplomatic relations, and the United States maintains an embargo on most trade. USINT staff is restricted to Havana. USAID does not have staff in Cuba, and Cuba program office staff have been unable to obtain visas to visit the island since 2002. Additionally, the range of Cuban partner organizations is significantly limited by U.S. law, which generally prohibits direct assistance to the Cuban government and NGOs with links to the government or the Communist Party.

Cuban law prohibits citizens from cooperating with U.S. democracy assistance activities authorized under the Cuban Liberty and Democratic Solidarity Act, punishable with prison terms of up to 20 years. Tactics for suppressing dissent include surveillance, arbitrary arrests, detentions, travel restrictions, exile, criminal prosecutions, and loss of employment. Neighborhood committees (known as Committees for the Defense of the Revolution) monitor residents’ activities; those identified as dissidents are subject to intimidation (acts of repudiation), including psychological and physical violence. Independent groups, dissidents, and activists face constant harassment and infiltration by Cuban government agents. In 2003, the Cuban government arrested and sentenced 75 leading dissidents and activists to terms of up to 28 years in prison. The Cuban government accused some of these individuals of receiving assistance from USAID grantees. A Cuban human rights group known as Damas de Blanco (Ladies in White), formed after the 2003 crackdown, consists of dissidents’ wives, mothers, and sisters who peacefully protest for the unconditional release of political prisoners.

There is no free press in Cuba, and independent journalists are harassed and imprisoned. The Cuban government also substantially restricts and controls the flow of information, routinely monitoring international and domestic telephone calls and fax transmissions. As of 2006, only about 200,000 Cubans out of a total population of 11 million had been granted official access to the Internet. The use of satellite dishes, radio antennas, fax machines, and cellular telephones is restricted due to high costs, laws, and the threat of confiscation. The customs service also routinely monitors mail, freight shipments, and visitors’ baggage for materials with political content. Further, the government routinely jams all external, non- Cuban broadcasts, including the U.S. government-supported Radio and TV Martí broadcasts.

Commission Recommends Increased Assistance and Identifies U.S. Objectives

The Commission for Assistance to a Free Cuba was established by the President to identify measures to help end the Castro dictatorship and identify U.S. programs that could assist an ensuing transition. The commission’s May 2004 report recommended providing an additional $36 million to USAID, State, and other agencies’ grant programs supporting Cuban civil society, as well as $5 million for worldwide public diplomacy initiatives. The report also recommended the creation of a transition coordinator for Cuba at State, a post created and filled in 2005.

The commission’s July 2006 report recommended providing $80 million over 2 years to increase support for Cuban civil society, disseminate uncensored information to Cuba, expand international awareness of conditions in Cuba, and help realize a democratic transition. The report also recommended subsequent annual funding of at least $20 million until the end of the Castro regime. These funds would be in addition to current funding for State and USAID democracy assistance programs and Radio and TV Martí.

State and USAID officials said that the commission’s 2004 report provides the policy framework for their agencies’ respective grant programs (see table 1).

U.S. Assistance Supports Civil Society; Most Awards Were Based on Unsolicited Proposals

State and USAID lead interagency efforts to provide democracy assistance to independent civil society groups and individuals in Cuba. However, we found weaknesses in the communications between State and USAID regarding the implementation of this assistance. State and USAID made awards to three types of grantees: Cuba-specific NGOs, NGOs with a worldwide or regional focus, and universities. Prior to 2004, all USAID awards were based on unsolicited proposals. In 2004–2005, USAID and State used a competitive process to select grantees. Since the program’s inception, USAID extended the amount and length of about two-thirds of the 40 grants and cooperative agreements it awarded.

State- and USAID-Led Interagency Process Implements U.S. Assistance

Since 1996, State and USAID have led the implementation of U.S. democracy assistance focused on Cuba. We observed weaknesses in communication between responsible State and USAID bureaus and offices.

State’s Office of Cuban Affairs (under the Bureau of Western Hemisphere Affairs) and USAID’s Cuba program office (under the Latin America and Caribbean Bureau) have led the implementation of assistance programs that support the development of democratic civil society in Cuba, coordinating their activities primarily through an interagency working group. This working group also includes representatives from the National Security Council, Commerce (Bureau of Industry and Security, Foreign Policy Controls Division), and Treasury (Office of Foreign Assets Control).

USAID has funded democracy assistance grants and cooperative agreements for Cuba since 1996. USAID’s Cuba program is overseen by a director and one junior officer. In 2005, State initiated a grant program for Cuba democracy assistance through DRL. Headed by an assistant secretary, DRL leads U.S. efforts to promote democracy, protect human rights and international religious freedom, and advance labor rights globally. The Director of U.S. Foreign Assistance (who serves concurrently as the USAID Administrator) is responsible for coordinating State and USAID democracy assistance worldwide, with continued participation in program planning, implementation, and oversight from the various bureaus and offices within State and USAID, and is developing a strategic framework and procedures to ensure that programs match priorities.

Table 2 outlines the roles and responsibilities of key executive branch agencies in providing democracy assistance to Cuba.

As the table shows, USINT plays an important role in implementing State and USAID democracy assistance focused on Cuba. In addition to these tasks, USINT administers immigration and refugee programs, maintains regular contact with Cuban activists and other embassy officials, and files reports regarding human rights abuses.

Effective internal control requires effective communication with key stakeholders who have a significant impact on whether an agency achieves its goals. However, during our fieldwork in Havana and Washington, D.C., we found that communications were sometimes ineffective between State bureaus and offices, USINT, and USAID regarding the implementation of U.S. democracy assistance focused on Cuba. Most critically (given that USAID does not have staff in Cuba and the Cuba program office staff cannot visit the island), routine communication links between USAID and USINT had not been established. Specific examples include the following: USAID did not receive reports prepared by USINT assessing some independent NGOs in Havana, although some of these organizations received assistance from USAID grantees. These reports summarize the observations made during USINT site visits and also recommended adjustments in the level and type of assistance distributed to individual NGOs. Given the lack of a USAID presence in Cuba, information provided in these reports would improve USAID officials’ knowledge of how some assistance is being utilized.

USAID’s Cuba program director did not participate in the evaluation and ranking of democracy assistance proposals submitted to State’s DRL. (He had an opportunity to provide comments after State’s review panel had met.) The director said that he potentially could have provided important “lessons learned” about these proposals, based on almost a decade of experience implementing assistance in Cuba. State officials said that the omission of the USAID Cuba program director from the technical review panels was an oversight and that DRL would take steps to ensure USAID’s participation on future Cuba panels.

USINT officials said that they received limited information from USAID about its grantees’ on-island activities, such as specific groups or individuals receiving U.S. support. The information these officials had about such matters was based on direct contact with some grantees and comments from dissidents. More complete information about grantee activities would provide a basis for USINT to monitor and report more systematically on groups and individuals receiving U.S. assistance.

USINT officials said that they had little advance knowledge of the types and amounts of assistance that USAID grantees expected them to distribute. In addition, they said that some grantee-provided books and other materials had been inappropriate or ill-suited for promoting democracy in Cuba. These officials stated that U.S. assistance would be more effective if they had more advance information about—and input into—grantee shipments. USAID officials agreed that better communication is needed to coordinate these activities.

In commenting on this report, State and USAID officials recognized the benefits of improved interagency communication on Cuba democracy assistance and noted that they were taking steps in this direction, such as providing USAID program officials with access to classified communications between State and USINT. According to the USAID Cuba program director, access to classified communications should allow better coordination with USINT on grantee shipments to the island. In addition, State said that DRL, the Bureau of Western Hemisphere Affairs, the Office of the Cuba Transition Coordinator, and USAID would meet regularly to share information gathered in quarterly meetings with grantees. USAID officials commented that including the Cuba program office in interagency working groups and weekly staff meetings of State’s Cuba desk would improve operational coordination. Including the Cuba program office in communications between USINT and grantees also would benefit USAID grantee oversight and management.

U.S. Assistance Is Intended to Support the Development of Cuban Civil Society

USAID and State democracy assistance generally aims to support independent civil society groups and individuals in Cuba. The 1992 and 1996 acts authorized support for individuals and independent NGOs in Cuba, such as sending humanitarian assistance to victims of political repression and their families; providing material and other support; sending books and other information; and supporting visits and the permanent deployment of independent human-rights monitors. The USAID Cuba program’s strategic objective 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.” Table 3 summarizes the DRL, USINT, and USAID program activities for democracy assistance targeted at Cuba.

USAID and State Made Awards to Three Types of Grantees

In implementing their program objectives, State and USAID awarded 44 grants and cooperative agreements from 1996–2005 to 34 grantees in three categories: Cuba-specific NGOs received awards totaling $37.3 million (about 51 percent of the total value of the awards); NGOs with a worldwide or regional focus received awards totaling $28.7 million (about 39 percent of the total value of the awards); and Universities received awards totaling about $7.6 million (about 10 percent of the total value of the awards).

All 34 grantees are U.S.-based, and most are located in Washington, D.C., or Florida. Table 4 summarizes State and USAID awards from 1996–2005.

Some of the NGOs with a worldwide or regional focus have a relatively long history working on Cuba issues. In some cases, these NGOs have received grants from NED. From 1984–2005, NED awarded 158 grants totaling $13.3 million for democracy assistance for Cuba. Established by Congress in 1983, NED is a private nonprofit corporation with the purpose of encouraging and supporting activities that promote democracy around the world. As part of its global grants program for “opening dictatorial systems,” NED assistance to Cuba has focused on providing aid to journalists, independent workers’ organizations, and cooperatives, while maintaining exile-based programs that defend human rights, provide uncensored information, and encourage dialogue about a country’s political future. NED’s independent governing board makes decisions about which assistance proposals the organization funds. In 2005, using a $3 million grant from DRL, NED funded 16 Cuba-related grants totaling about $2.2 million. (Four of the 16 grantees also have active USAID grants for Cuba democracy assistance.)

Grantee Selection Was Based on Unsolicited Proposals until 2004

Our analysis showed that about 95 percent ($61.9 million) of USAID’s total awards were made in response to unsolicited proposals. From 1996–2004, USAID made 34 awards ($54.7 million) based on unsolicited proposals. The unsolicited proposals were evaluated by the interagency working group (see table 2). In 2004–2005, USAID made 5 awards ($3.5 million) based on two requests for applications (RFA). The proposals received in response to these RFAs were evaluated and ranked by two technical evaluation committees that included State and USAID officials. In 2005, USAID also made an additional award to a previous grantee for $7.2 million based on an unsolicited proposal. The USAID Assistant Administrator for Latin America and the Caribbean authorized the negotiation of awards for both unsolicited and solicited proposals. All awards ultimately were approved by an agreement officer in USAID’s Office of Acquisition and Assistance.

In keeping with the Federal Grant and Cooperative Agreement Act, USAID policy encourages competitive awards for grants and cooperative agreements in most circumstances so that the agency can identify and fund the best projects to achieve program objectives. USAID’s general policy is to award all grants and cooperative agreements competitively, seeking applications from all eligible and qualified entities. However, USAID policy permits funding unsolicited proposals (without the benefit of competition) when certain criteria are met. For example, an unsolicited proposal may be funded if USAID did not solicit the proposal and it presents a unique or innovative approach, fully supports U.S. development priorities, and demonstrates a unique capacity for the applicant to carry out program activities. In such cases, USAID guidance requires that officials explain the circumstances that justify funding these proposals. The USAID Cuba program director told us that the interagency working group (see table 2) had opposed prior attempts to employ a competitive process for selecting grantees.

USAID’s successful use of competitive solicitations for some awards in 2004–2005 suggests that the Cuba program could have employed this selection strategy for at least some prior awards. A total of 27 NGOs responded to USAID’s 2004 and 2005 RFAs. USAID’s technical evaluation committees found the proposals submitted by 12 of the 27 applicants “within the competitive range” of the RFAs, and recommended awarding cooperative agreements to 6 applicants and asking an additional 6 to submit (revised) best and final proposals. Eight of the 12 applicants had not received prior awards for U.S. democracy assistance for Cuba. In technical comments on this report, USAID officials said that using a competitive process will not always result in grantees different from those that would be selected using a noncompetitive process.

All four State awards in 2005 ($8.1 million) were made competitively; two of these awards ($4.5 million) were to USAID Cuba grantees. Proposals received in response to State’s RFA were reviewed and evaluated by two technical committees (panels) that included officials from State’s Western Hemisphere Affairs, DRL bureaus, USINT; awards were approved by the Assistant Secretary of State for Democracy, Human Rights and Labor. As previously discussed, the USAID Cuba program director received copies of the proposals for comment but did not participate in the technical panels. In commenting on this report, State officials said that DRL would continue to the greatest extent possible to use a competitive process for Cuba grants. State officials also said that DRL’s standard practice is to solicit participation by USAID and the appropriate regional bureau on all its evaluation panels, and that they will ensure that this policy is followed on future Cuba panels.

Agreements Often Modified to Increase Funding and Extend Completion Dates

Our analysis showed that USAID modified 28 of the 40 agreements awarded between 1996 and 2005 to increase funding, extend program completion dates, or both. In several cases, these modifications substantially altered grantees’ project objectives. These modifications increased the aggregate value of these agreements nearly eight-fold—from about $5.9 million to nearly $50.1 million—and extended the program completion dates by an average of about 3 years. Between November 1997 and May 2006, USAID had modified 12 agreements that we reviewed in detail (see fig. 1). These modifications increased the aggregate value of these agreements from about $4.8 million to nearly $42.3 million and extended the program completion dates by an average of about 4.6 years.

USAID policy requires that some modifications and extensions be justified, such as those that extend the life of the award and simultaneously either increase the total estimated amount of the award or change the program description. Officials must explain why the benefits of continuing the assistance activity with the same grantee exceed the benefits of a competitive process favored by law and agency policy. USAID Cuba program officials stated that they modified existing agreements (rather than initiating new ones) to prevent disruption of assistance programs. Additionally, officials said that they wanted to avoid the administrative burdens associated with awarding new grants or cooperative agreements. However, USAID procurement officials told us that, whether modifying an existing agreement or making a new noncompetitive award to the same grantee, a similar amount of work is required. These officials also identified several advantages to closing out awards and making new ones. Following established closeout procedures, for example, provides additional assurance that grantee expenditures to date have been appropriate, and end-of-project reports provide important information about project accomplishments and failings to date. As discussed in a following section, the Cuba program office has decided to require grantees to submit interim evaluations when requesting significant project modifications or extensions.

Grantees Provided Assistance and Information to Recipients Using Several Methods; USINT Played Active Role

USAID reports that its grantees have provided a wide range of democracy- related assistance since the Cuba program’s inception. In 2005, the 10 grantees that we reviewed delivered humanitarian and material assistance, training, and information to Cuba. In addition, several of these grantees worked to increase international awareness of the Cuban regime’s human rights record; others planned for a democratic transition in Cuba. Recipients of U.S. humanitarian and material assistance, training, and information included human rights activists, political dissidents, independent librarians, journalists, and political prisoners and their families. Grantees employed several methods to deliver these items to the island. According to grantees and U.S. officials, these methods involve different security, flexibility, and cost considerations. Increasingly since 2000, USINT has distributed some grantee-funded assistance directly.

USINT also provides information, electronic equipment, and other support to Cubans using its own funding.

U.S. Democracy-Related Assistance Since 1996

According to data provided by USAID, from 1996 to 2006 the Cuba program provided the following assistance: 385,000 pounds of medicines, food, and clothing; more than 23,000 shortwave radios; and millions of books, newsletters, and other informational materials. In addition, USAID reported that U.S. assistance supported journalism correspondence courses for more than 200 Cubans, the publication of about 23,000 reports by independent Cuban journalists about conditions or events in Cuba, and visits to Cuba by more than 200 international experts to help train and develop independent NGOs.

Dissidents we interviewed in Cuba said that they appreciated the range and types of U.S. democracy assistance, that this assistance was useful in their work, and that this aid demonstrated the U.S. government’s commitment to democracy in Cuba. Dissidents said they appreciate the moral support that U.S. assistance provides, and that this aid enhanced their ability to continue their pro-democracy work.

Grantees Provided Four Types of Assistance in 2005

In 2005, the 10 grantees we reviewed reported activities in four categories: (1) providing humanitarian and material assistance and training to independent civil society groups and individuals; (2) disseminating uncensored information to, within, and from Cuba; (3) increasing international criticism of the Cuban regime by highlighting its human and workers’ rights violations; and (4) planning for a future transition to democracy by sponsoring conferences and publishing studies. Our analysis of quarterly reports and other records show that these grantees provided substantial assistance in 2005 (see table 5).

In technical comments on this report, USAID officials said that the purpose for providing novels, video games, children’s coloring books, and some other items listed in table 5 is to attract Cubans to independent libraries and other organizations so that they can review other materials on democracy, free markets, and other subjects.

Eight grantees also reported conducting international outreach and advocating for human and workers’ rights causes in Cuba (either directly or through subgrantees). Our analysis of quarterly reports shows that these grantees were involved in organizing or participating in the following types of activities in 2005: conferences and meetings held by groups such as the United Nations Human Rights Commission in Geneva, Switzerland, and the Organization of American States General Assembly, in Ft. Lauderdale, Florida; meetings with foreign government and political leaders to discuss human and workers’ rights in Cuba and possible support for activists; conferences and meetings of civil society groups; press conferences, news releases, and other events related to human mail, e-mail, and letters distributed to foreign government officials.

One grantee was primarily focused on planning for a democratic transition. This grantee reported that it commissioned academic studies, compiled databases, and organized seminars in the United States and a Latin American country. These resources were made available in print and online.

Recipients of U.S. Assistance Included a Range of Cuban Civil Society Groups

Our analysis of quarterly reports and other records shows that the recipients of U.S. assistance in 2005 included political prisoners and their families, independent librarians, journalists, political parties, labor organizations, other civil society groups and activists, and, to a lesser extent, the general Cuban public (see table 6).

According to USINT officials, recipients sometimes give away or sell books, magazines, newspapers, or other assistance. According to senior USINT officials, these actions may have the unintended effect of expanding the reach of U.S. assistance. Senior U.S. officials viewed these losses due to confiscation or reselling as an unavoidable cost of providing democracy assistance in Cuba’s repressive political and economic environment. However, in technical comments on this report, USAID officials said that, despite potential benefits of expanding the reach of US assistance, selling such assistance is not allowed under USAID policy. USAID recently sent an e-mail to its grantees reminding them that they are forbidden to sell or knowingly condone the selling of humanitarian aid or other assistance by recipients.

Several Methods Used to Deliver U.S. Assistance

The grantees in our sample reported using several methods to deliver humanitarian aid and material assistance, training, and informational materials to Cuba. Grantees and U.S. officials said that these methods involved different security, flexibility, and cost considerations. For example, the estimated cost of delivering humanitarian or material assistance to the island ranged from about $4 to $20 per pound.

Some grantees have taken steps to reduce the risk of loss—due to theft or confiscation by the Cuban government—of assistance shipped to Cuba. Dissidents we interviewed in Havana said that the assistance they received from USAID and State grantees (and other organizations) was sometimes interrupted. In addition, USAID officials said that the Cuban government closed some independent libraries and confiscated their books and equipment in 2005.

We plan to issue a classified version of this report that would provide additional information about the methods used to deliver U.S. assistance to Cuba, steps taken to reduce losses of assistance shipped to the island, and some of the recipients of U.S. assistance in Cuba.

USINT Delivers Some Grantee and Other Assistance

USINT data shows that it delivers assistance and information to more than 2,500 individuals and groups in Cuba. In 2005, for example, the office distributed over 269,000 books, magazines, articles, pamphlets, and other materials. According to U.S. officials, USINT’s role delivering democracy assistance has increased since 2000—as indicated by the substantial increase in the volume. These officials also said that further expanding the volume of items distributed would require additional staff and resources.

The assistance delivered by USINT was funded by State and USAID grantees as well as by USINT. According to U.S. officials, USINT purchased materials, equipment, and information, including U.S. national news and professional magazines, such as the Spanish-language versions of Newsweek, The Economist, Art in America, The Atlantic, Popular Mechanics, and Downbeat. In 2004, the office also purchased equipment, materials, and an electronic subscription allowing it to publish onsite 300 copies of El Nuevo Herald daily newspaper. USINT also purchased and distributed radios, laptop computers, and DVD players. Some of this material and information distributed by USINT is redistributed by individuals and groups to other locations in Cuba.

During our fieldwork at USINT, we observed employees unload, sort, and distribute shipments sent by USAID grantees and one U.S.-based NGO, as well as items purchased by USINT. Shipments included materials for independent librarians and journalists, artists, musicians, academics and teachers, churches, and foreign diplomats. Some of these shipments were addressed to specific individuals. USINT officials said that they deliver information directly to some Cuban government officials. USINT officials also distribute literature and equipment to Cubans visiting the consular section for visas or other business.

As part of its public diplomacy efforts, USINT provides videoconferencing capabilities and public Internet access to facilitate the work of State and USAID grantees. For example, grantees use Internet-based video conferencing for training sessions. We observed a training session organized by one USAID grantee for approximately 20 independent journalists. In addition to the training, the participants said that they had received other U.S. assistance, such as equipment, supplies, and help in publishing their stories outside Cuba. USINT also provides public access to about 20 computers with Internet access, printers, and copiers. During our fieldwork, we observed that a number of Cuban activists used these computers. The computers also appeared to be popular with the Cuban public—reservations for using them were booked for a month in advance, according to USINT employees managing this equipment.

Additionally, as part of USINT’s public diplomacy program, the public affairs office also compiles and selects daily news clippings and quotes to display on an electronic billboard news ticker located on USINT’s exterior. This billboard was installed in January 2006 to display information for people passing the building, which is located on a major Havana street and pedestrian walkway.

Monitoring and Oversight of Cuba Program Grants Did Not Provide Adequate Assurance That Funds Were Used Properly

USAID’s internal controls over both the awarding of Cuba program grants and the oversight of grantees do not provide adequate assurance that the grant funds are being used properly or that grantees are in compliance with applicable laws and regulations. The Guide to Opportunities for Improving Grant Accountability states that organizations that award grants need good internal control systems to provide adequate assurance that funds are properly used and achieve intended results. However, we found some weaknesses in internal control in the preaward, award, implementation, and closeout phases of Cuba-program grants management. The agency’s preaward reviews of grantees often were not completed prior to grant awards, and USAID auditors did not adequately follow up to correct deficiencies after grant awards. In addition, the standardized terms and conditions of grants and cooperative agreements lacked the detail necessary to support adequate accountability; specifically, the grants and cooperative agreements did not include a requirement for an acceptable internal control framework, nor did they contain provisions for correcting deficiencies noted by preaward reviews. USAID’s Cuba program office also does not have adequate policies and procedures for assessing grantee risks in order to put in place proper procedures to reduce that risk. In addition, a lack of adequate oversight and monitoring by USAID’s program office allowed for questionable expenditures by grantees to go undetected; moreover, grantee compliance with cost-sharing provisions was not adequately addressed. The program office also did not provide adequate training to grantees and does not appear to routinely follow prescribed closeout processes. These weaknesses in agency and program office internal control policies and procedures contributed to internal control deficiencies we found at 3 of the 10 grantees we reviewed, leaving USAID’s Cuban democracy program at increased risk of fraud, waste, and abuse. We referred the problems we identified at these 3 grantees to the USAID Office of Inspector General.

USAID’s Preaward Processes Were Inadequate

USAID guidance requires grant officers to determine whether the potential recipient possesses, or has the ability to obtain, the necessary management competence in planning and carrying out assistance programs, and whether it practices mutually agreed upon methods of accountability.

As addressed in the Guide to Opportunities for Improving Grant Accountability, an effective review performed before the award—which includes a general review of the control environment and the control activities in place—helps to detect and correct control weaknesses that could contribute to potential fraud, waste, and abuse of grant funds. The potential grantee can then correct these weaknesses before USAID provides funding. During our site visits, we identified fundamental internal control weaknesses at three grantees that might have been mitigated if USAID had performed more timely preaward reviews and performed the necessary follow-up on findings. (Table 7 lists some examples of the internal control weaknesses we identified at these three grantees.)

First, in four of the eight instances in which preaward reviews were conducted, the reviews were completed after the awards were made. According to USAID officials, these four reviews were issued from 3–33 days after the award date primarily because of staffing shortages. However, in technical comments on our report, USAID officials said that the agreement officer received oral findings from USAID or Defense Contract Audit Agency auditors before the final report.

We also identified one preaward review conducted for USAID by the Defense Contract Audit Agency that appears to have had limitations and weaknesses in its implementation. This review, dated November 20, 2002, concluded that one of the three grantees for which we identified fundamental internal control weaknesses had an adequate accounting system. However, during our site visit in 2006, this grantee could provide only some paid invoices and bank statements for transactions before February 2005. These records were insufficient for tracking and reporting accumulated grantee expenditures or reconciling bank accounts.

Second, USAID’s follow-up on preaward reviews was insufficient to provide assurance that deficiencies and weaknesses found during the preaward reviews were adequately addressed. Five of the eight preaward reviews we assessed made recommendations for correcting deficiencies in the grantees’ accounting systems that could adversely affect grantees’ ability to record, process, summarize, and report direct and indirect costs. However, the corresponding grants and cooperative agreements did not include specific provisions for correcting these deficiencies. Moreover, although all eight reviews we assessed recommended follow-up reviews, USAID did not conduct most of them in a timely fashion. In one case, USAID did not conduct a follow-up review until 3 years after such a review was recommended in an initial review. In technical comments on this report, USAID officials said that in the past there were some instances where resources for preaward and follow-up reviews were not available, but that obtaining funding for these reviews is generally a priority for USAID and the Office of Acquisition and Assistance. USAID officials stated that the Office of Acquisition and Assistance will work with the Cuba program office to ensure information regarding grantee audits is communicated to all appropriate staff in a timely manner and that if any subsequent audits are necessary, adequate funding will be made available.

Grant Agreements Did Not Support Program Accountability

We performed a detailed review of four cooperative agreements and one grant agreement that USAID signed between 1997 and 2005 for democracy assistance for Cuba. These agreements had a variety of objectives, ranging from providing humanitarian assistance to dissidents and their families to providing information about conditions in Cuba to the Cuban public and the international community. In general, however, the standardized language of the agreements did not contain sufficient detail to address the unique objectives of each grant, the grantee’s internal controls, or the remediation of known grantee deficiencies. This increases the risk that grantees will use program funding, either unintentionally or intentionally, for purposes that are not intended by the program and that program assets will not be adequately safeguarded.

According to the Guide to Opportunities for Improving Grant Accountability, the terms, conditions, and provisions in the award agreement, if well designed, can render all parties more accountable for the award. The terms and conditions in the USAID grants and cooperative agreements we reviewed generally lacked the detail necessary to provide adequate guidance to grantees. For instance, although providing humanitarian assistance is a common objective, the agreements provided insufficient detail for grantees to differentiate between allowable and unallowable types of such assistance. In addition, rather than providing guidance in the agreement document, the agreements pointed to additional sources of rules and regulations, including supporting legislation that the grantees might have difficultly locating or implementing without additional guidance. For example, the agreements do not contain details about acceptable cost-sharing contributions, but instead direct grantees to the Code of Federal Regulations. The grant agreements we reviewed also did not include provisions requiring grantees to establish and maintain an acceptable internal control system or, as previously discussed, provisions for correcting deficiencies identified during preaward reviews.

Cuba Program Office Inadequately Monitored and Oversaw Grant Implementation

Internal controls should be designed to provide for ongoing monitoring in the course of normal operations. We identified several weaknesses in the USAID Cuba program office’s oversight and monitoring of grantees’ implementation of grants and cooperative agreements, including the lack of policies and procedures for identifying at-risk grantees, formal oversight of grant implementation, and a framework for monitoring cost sharing. In addition, the program office provided inadequate training to grantees. These weaknesses exist in a restrictive environment where the Cuban government precludes Cuba program officers from directly observing the use and outcomes of the assistance.

Policies and Procedures for Mitigating Risks at At-Risk Grantees Are Inadequate

The USAID Cuba program office does not have adequate policies and procedures for assessing and managing the risks associated with specific grantees. USAID Cuba program officials have not performed a formal risk assessment of the grantees providing assistance to Cuba, although they said that they consider recipients of larger awards to be higher risk. Larger recipients often are subject to the Single Audit Act and annual financial statement audits, and are therefore subject to internal control and compliance testing. The program director and program office staff said that they visit grantees at least quarterly. However, one of the grantees we reviewed said that USAID officials do not conduct formal financial oversight visits to their office. Visits to large and small grantees were not formally documented and were not based on structured oversight procedures. In addition, the USAID program office also performed limited to no reviews of the financial records for recipients, increasing the risk that they would operate without effective controls. USAID Cuba program officials said that if the applicant had a prior history of managing USAID or U.S. government contracts or grants, USAID contacted the cognizant USAID or other federal agency technical officer for information about those awards. For applicants without a prior history of managing such federal awards, the program office verifies that the applicant had received 501(c)(3) status from the Internal Revenue Service (IRS). USAID also conducts local inquiries to verify the reputation and qualifications of the applicant.

USAID Does Not Effectively Monitor Grant Project Implementation

USAID’s Cuba program office does not have a formal grantee monitoring and oversight process to help ensure accountability for grant funds. We found key weaknesses in the oversight USAID did provide.

First, USAID lacked adequate documentation of the grantees’ implementation plans. Five agreements between USAID and grantees specified that grantees were to submit implementation plans for approval before initial disbursements. A USAID official said the plans had been communicated orally or included in the grantees’ initial proposals. However, we found inadequate documentation in USAID’s files to support this. In addition, some grantees with whom we spoke lacked an understanding of USAID’s requirements for implementation plans. For example, two grantees could not confirm the existence of implementation plans for their respective grants.

Second, USAID did not require grantees to submit detailed, well-supported quarterly reports and did not have a formal process for reviewing those reports. Along with a narrative report, USAID requires grantees to submit one-page quarterly financial reports (but not supporting documentation) to validate underlying expenditures. Although grantees provide summary amounts for expenditures and obligations, the financial information required by USAID in the quarterly reporting process is not sufficiently detailed to help the program office identify potentially inappropriate expenditures. In addition, USAID does not have a formal process for reviewing this reporting. The lack of formal quarterly review procedures and documentation reduces USAID’s ability to identify and correct inappropriate expenditures by grantees. In technical comments on this report, USAID officials said that the Paperwork Reduction Act limits USAID’s ability to require, as a general rule, grantees to report information in addition to that required under OMB circular A-110 and 22 CFR Part 226 without approval from OMB. USAID officials said that they will consider pursuing OMB approval.

Third, USAID does not have a protocol for monitoring visits to grantees and does not document the results of those visits. Our Standards for Internal Control in the Federal Government addresses the need for developing and implementing detailed procedures for grantee monitoring. During our fieldwork, we accompanied USAID Cuba office staff on site visits to several grantees. During this fieldwork, we observed that USAID officials did not use a structured review process or coordinate their reviews to prevent gaps or duplication of efforts. USAID officials did not prepare trip reports or other written summaries of their observations during these site visits. Some grantees stated that program officials generally examined only a limited number of invoices during their visits. One program office staff member said that, during site visits, he typically spent about an hour interviewing grantee representatives and reviewing records at each grantee.

USAID Cuba Office Lacks Framework for Monitoring Cost Sharing

USAID’s Cuba program office did not have a framework for overseeing grantee compliance with cost-sharing requirements in their grants and cooperative agreements and could not determine whether grantees were complying with these requirements. Cost sharing, an important element of the USAID–grant recipient relationship, is applied to certain grantees on a case-by-case basis. If USAID includes a cost-sharing provision in an agreement, the respective grantee must finance a specified amount of activity costs using nonfederal funds. Some agreements allow grantee contributions to include nonmonetary contributions, such as services and property, in addition to cash contributions.

Twelve of the 13 USAID agreements we reviewed contained cost-sharing provisions, totaling about $7.6 million. In some cases, the grantee’s cost share was a significant portion of the total amount of assistance authorized under the agreement. For example, one grantee’s initial share represented 56 percent of the total estimated program amount. Moreover, as previously discussed, the cost-sharing provisions we reviewed offered little guidance about the allowable sources of cost-sharing funds or the methods for valuing non-monetary contributions applied toward the cost share, instead directing grantees to the Code of Federal Regulations.

Grantees are required to periodically report to USAID the amounts they have spent as their portion of the cost sharing. However, based on a review of grantee documentation and interviews with agency staff, we determined that USAID does not systematically monitor grantee compliance with cost-sharing requirements. For example, staff does not use a work program or structured methodology to determine whether grantees comply with cost-sharing provisions in their respective agreements.

Two of the USAID grantees we reviewed reported that they complied with USAID grant regulations by applying funds received under grants from NED toward their required share of program costs. USAID grant regulations at 22 CFR 226.23 require grantees to meet their cost-sharing requirement with nonfederal resources. For the purpose of complying with USAID grant regulations on cost-sharing requirements, it is unclear whether funds received under grants from NED constitute federal or nonfederal resources. USAID officials, after consulting with State and NED officials, have determined that NED funds provided from U.S. government sources cannot be used by NED grantees to meet required cost-share contributions under USAID regulations. USAID officials said that they will address the proper use of NED grant funds provided from U.S. government sources in relation to existing and future USAID grants.

USAID Does Not Provide Adequate Training to Grantees

One important role for a grantor program office is the training and guiding of program grantees, as discussed in the 2005 Guide to Opportunities for Improving Grant Accountability. However, USAID does not provide formal grant management training to help grantees understand the regulations, policies, and procedures governing grant funds. According to USAID officials, limited English proficiency has created additional challenges for some of the smaller grantees. The Cuba program director stated that he had wanted to provide formal training to certain grantees, but was concerned about the grantee reaction to creating training requirements for some, but not all, grantees. In technical comments on this report, USAID officials said that although grantees are responsible for understanding and complying with grant provisions and federal laws and regulations, USAID will consider providing Spanish language technical assistance to grantees to build NGO capacity for financial management. USAID also is pursuing providing grant and regulation information to grantees in Spanish.

USAID Does Not Appear to Routinely Follow Prescribed Closeout Processes

Closeout processes can be used for identifying problems with grantee financial management and program operations, accounting for any real and personal property acquired with federal funds, making upward or downward adjustments to the federal share of costs, and receiving refunds for unobligated funds that the grantee is not authorized to retain. USAID did not provide us with evidence that they routinely performed closeout processes for some agreements. Currently, USAID guidance states that if a U.S. grantee requires a closeout audit, the Office of Acquisitions and Assistance must include a closeout audit request in the next regularly scheduled audit of the organization. In technical comments, USAID officials said that such audit requests are no longer made because the agency uses a database system to track whether grantees required to have closeout audits receive one in accordance with agency policies and procedures. The Office of Acquisitions and Assistance recognizes that the current written policy regarding closeout procedures is outdated and is working to update it.

USAID’s Weaknesses Contributed to Deficiencies Observed at Three Grantees

During our limited reviews, we identified fundamental internal control weaknesses at 3 of the 10 grantees that most likely would have been identified had USAID followed up on weaknesses identified by preaward reviews. In addition, the lack of adequate oversight and monitoring by USAID’s program office allowed for questionable expenditures by three grantees to go undetected. Table 7 summarizes the internal control weaknesses we observed at these grantees.

The 3 grantees discussed in table 7 accounted for about 9 percent ($4.7 million) of the awards received by the 10 grantees we reviewed. Two of the 3 grantees detailed above did not maintain adequate records of the amount and type of assistance or materials sent to Cuba, the methods and dates assistance was sent or transmitted, or efforts to verify that assistance was received. Additionally, these two grantees had not established systematic procedures for gathering, documenting, and reporting this information.

For these three grantees, we identified numerous questionable transactions and expenditures that USAID officials likely would have identified had they performed adequate oversight reviews. For example, two grantees had inadequate support for checks written to key officials of that organization. In addition, one of these two grantees could not justify some purchases made with USAID funds, including a gas chainsaw, computer gaming equipment and software (including Nintendo Gameboys and Sony Playstations), a mountain bike, leather coats, cashmere sweaters, crab meat, and Godiva chocolates. According to this grantee’s proposal, USAID funds were to be used to provide humanitarian assistance and information to dissidents and their families. Subsequent to our questions regarding these purchases, the grantee’s executive director wrote us that he intended to submit corrections to USAID for some of these charges.

In conjunction with the USAID Assistant Administrator for Latin America and the Caribbean and the Cuba program director, we referred the problems we identified at the three grantees discussed in table 7 to the USAID Office of Inspector General. An investigator said that the Office of Inspector General was investigating these three grantees.

Based on our limited review, 7 of the 10 grantees appear to have established systematic procedures for documenting, tracking, and reporting on the use of grant funds. These 7 grantees accounted for about 91 percent ($47.2 million) of the awards received by the 10 organizations that we reviewed (see footnote 44). The operating procedures at some of these 7 grantees are likely the result of pre-existing internal control operating characteristics (and do not reflect USAID monitoring and oversight). These grantees also had detailed records of their respective activities. For example, one grantee maintained an inventory and signed receipts for humanitarian shipments to Cuba, and dated, handwritten notes of telephone calls or other communications to verify receipt of shipments. Another grantee maintained detailed records of the methods used, quantities of printed material transmitted, and copies of communications as evidence of receipt.

Some Data Available about the Impact of U.S. Assistance

Agencies and grantees face an operating environment in Cuba that presents monitoring and evaluation challenges. USAID has conducted some program evaluation, but has not routinely collected program outcome information from its grantees. Instead, USAID and its grantees have largely focused on measuring and reporting program activities. In 2005–2006, however, USAID began to focus on collecting better information about the results of U.S. democracy assistance.

Operating Environment Presents Monitoring and Evaluation Challenges

The operating environment in Cuba poses a range of challenges to monitoring and evaluating U.S.-funded democracy assistance. Challenges include: The lack of USAID presence in Cuba and the inability of the USAID staff to travel there, because the Cuban government actively opposes U.S. democracy assistance.

The lack of operational coordination and routine communication links between State and USAID (as previously discussed).

Grantee reluctance to share information with other grantees because of concerns about potential Cuban government infiltration of grantee operations.

USAID and grantee concerns that sensitive agency records could be disclosed in response to Freedom of Information Act requests (as previously discussed).

U.S. officials and grantees cited potential danger to dissidents and activists in Cuba if sensitive information was released or disclosed.

The USAID Cuba program director said that in this environment, strict cause and effect relationships between the USAID program and changes in Cuban civil society are difficult to establish and document. Compared with activities in Cuba, off-island activities, such as those at U.S. universities, are generally easier to carry out, monitor, and evaluate, according to USAID officials. However, off-island activities have a less- evident and slower impact on Cuban society and politics.

USAID and Grantees Have Conducted Some Evaluations of Cuba Assistance

USAID’s Cuba program office and its grantees have conducted some evaluations of U.S. assistance, but these studies have been limited in number and scope. USAID officials also have informally interviewed Cuban dissidents and émigrés about the receipt and effectiveness of U.S. assistance, but they did not systematically document, compile, or analyze the results of these interviews. Although USINT has assessed some independent libraries in Cuba, USAID has not received its reports.

USAID and Grantee Evaluations of Cuba Assistance

USAID and its grantees have conducted some evaluations of U.S. democracy assistance for Cuba (see table 8). Generally, however, these efforts have not reflected a systematic approach to program evaluation, although some benefits resulted.

The USAID program director also has conducted a number of informal interviews with Cuban dissidents and members of independent Cuban NGOs able to travel outside Cuba. Although limited by Cuban government controls on travel, these opportunities provided USAID with some ability to verify the receipt and impact of grantee assistance directly, according to USAID officials. For example, the program director was able to verify that some dissidents had received, and continued to use, computers shipped to the island. In other cases, USAID has relied on USINT reporting to verify receipt of such assistance. However, these interviews and discussions were conducted on a sporadic basis, and USAID officials did not systematically document, compile, or analyze the results.

USINT Assessments of Independent NGOs in Cuba

USINT officials have done some monitoring of assistance (books, equipment, and supplies) distributed to about 100 independent NGOs in Havana. (USINT employees distributed this assistance, which it and USAID grantees had purchased.) As we observed during our fieldwork, USINT employees kept records of unannounced inspection visits to these organizations and submitted summary reports to USINT officials. Based on these reports, USINT officials have recommended increases or decreases in the level and type of assistance provided to these NGOs. Although there have been documented losses at some of these organizations, USINT officials said such losses were unavoidable in Cuba and that their policy is to continue providing some limited assistance to these NGOs. As discussed previously, however, USAID has not received these reports.

USAID and Grantees Have Focused on Measuring and Reporting Program Activities

USAID and its grantees have not routinely collected and reported data and other information about the results or impact of the democracy assistance they have provided. USAID’s reports have focused primarily on measures of program activities. The Cuba program office’s accomplishment reports, updated on a monthly basis, consolidate quantitative data about activities and related information submitted quarterly by grantees, such as the number of books, newsletters, and other informational materials sent to the island; the number of reports published by Cuban independent journalists; and instances where the international community denounced Cuban government human rights violations. The Cuba program’s annual operational plan takes a similar approach. USAID officials said that data about shipments of books, newsletters, and other informational materials provide a measure of the flow of information to Cuba. The officials also said that data about the number of independent journalists published outside Cuba on the Internet (or in hard copy) provide a measure of the flow of information from Cuba. However, these reports and data do not provide an assessment of the impact or contribution of these activities in the context of helping to build civil society in Cuba (part of the USAID Cuba program’s strategic objective) or the effectiveness of U.S. assistance in achieving broader U.S. democracy goals and objectives for Cuba.

In addition to measures of program activities, USAID officials point to the total number of nonviolent acts of civil resistance in Cuba, as reported in annual Steps to Freedom reports, as a proxy indicator for measuring the positive impact of U.S. democracy assistance. Rich in detail about Cuba’s dissidents, the reports show that total nonviolent acts of civil resistance increased from about 600 acts in 2001 to about 1,800 in 2004. However, the reports show that, between 2002 and 2004, the number of less intense nonviolent acts of civil resistance increased while the number of more intense acts declined. In commenting on a draft of our report, State officials said that this decline coincided with the Cuban government’s 2003 crackdown on dissidents. Annual reports on human rights conditions in Cuba prepared by Amnesty International, Human Rights Watch, and State covering the same period (2001–2004) portray a more complex and ambiguous human rights situation than the generally positive trend shown by the indicator in the Steps to Freedom reports.

Grantees’ quarterly reports to USAID are the main vehicle for reporting performance information. The quarterly reports submitted by 10 grantees in 2005 consistently provided data about program activities. However, these reports generally did not provide a focused analysis of program accomplishments. Only two organizations consistently identified program results as part of their quarterly reporting. For example, one grantee’s reports discussed the results of assistance activities in the context of the broader Cuban pro-democracy movement and short- and long-term civil society goals. USAID officials said that they had repeatedly emphasized to grantees the importance of including information about project results in their reporting. The USAID Assistant Administrator for Latin America and the Caribbean and the Cuba program director said that the director had discussed this topic at grantee meetings held several times each year.

USAID Program Office Has Started to Focus on Collecting Better Information

Since 2005, USAID’s Cuba program has taken several steps to improve data collection and its communication with grantees. These include: Increasing staff expertise and meeting more regularly with grantees. In 2005, a staff member with experience in grant management and performance evaluation joined USAID’s Cuba office; this staff member developed, and began using, a set of structured questions to gather and record grantee performance information. This new staff member also began to meet and regularly communicate with grantees. However, the staff member said that the office’s small number of staff makes effective program monitoring and evaluation challenging.

Improving information in grantees’ quarterly reports. The Cuba program acknowledged that quarterly reports submitted by grantees have not included important information about program activities and results. Several grantees said that they were unsure of what evaluation-related information to include in reports and had received relatively little guidance from USAID until recently. According to USAID, smaller grantees have experienced greater challenges in this regard because of their lack of experience working with USAID and because of their limited English proficiency. USAID officials acknowledged grantees had not been provided formal training in program evaluation.

In July 2006, USAID’s Cuba program office e-mailed grantees a more detailed description of the types of data and other information to include in their quarterly reports, as part of a series of e-mails to remind grantees of USAID laws, regulations, and policies. USAID staff said that they are working with grantees to improve the quality of their quarterly reports and that they intend to issue additional written guidance.

Requiring intermediate program evaluations. In 2006, recognizing that the frequent use of agreement modifications and extensions had postponed end-of-project evaluations for many grantees, the Cuba program office decided to include terms in future grants and cooperative agreements requiring grantees to submit interim evaluations when requesting significant project modifications or extensions.

Conclusions

In the context of recent recommendations to increase funding for democracy assistance in Cuba, we conclude that the U.S. government’s efforts to support democratic political change face several significant challenges. Some of these challenges stem from the difficult operating environment in Cuba, while others are the result of weaknesses in the managerial oversight the program has received to date. Recently, however, USAID has taken some steps to establish improved policies and reporting procedures.

Effectively delivering democracy-related assistance to Cuba will require a number of improvements, including better communication between State and USAID regarding day-to-day activities, particularly in Cuba. In addition, a number of the basic elements required for effective grant management and oversight need to be strengthened. These include ensuring that effective preaward reviews are performed, strengthening internal controls at the grantee level, and identifying and monitoring at- risk grantees. Further, agency officials need to inform and, as needed, train grantees about their shared responsibilities in collecting information that will permit better monitoring and evaluation of program outcomes. Ultimately, better program oversight can help to assure that resources are responsibly and effectively utilized and grantees are in compliance with applicable laws and regulations.

Recommendations for Executive Action

We recommend that the Secretary of State and the USAID Administrator work jointly to improve communication among State bureaus in Washington, D.C.; USINT in Cuba; and USAID offices responsible for implementing U.S. democracy assistance, recognizing that USINT has limited resources but a crucial role in providing and monitoring democracy assistance.

We also recommend that the USAID Administrator direct the appropriate bureaus and offices to improve management of grants related to Cuba by taking the following actions: Improving the timeliness of preaward reviews to ensure they are completed prior to the awarding of funds.

Improving the timeliness and scope of follow-up procedures to assist in tracking and resolving issues identified during the preaward reviews.

Requiring that grantees establish and maintain adequate internal control frameworks, including developing approved implementation plans for the grants.

Providing grantees specific guidance on permitted types of humanitarian assistance and cost-sharing, and ensuring that USAID staff monitors grantee expenditures for these items.

Developing and implementing a formal and structured approach to conducting site visits and other grant monitoring activities, and utilizing these activities to provide grantees with guidance and monitoring.

Agency Comments and Our Evaluation

We received comments from State and USAID, which are reprinted in appendixes II and III, respectively. State and USAID appreciated the professionalism with which we conducted our review and were gratified that we were able to report that dissidents in Cuba appreciated U.S. democracy assistance, and found this assistance to be useful in their work. In response to our recommendation, State said that, consistent with the Secretary of State’s recent foreign assistance reforms, it was taking steps to improve interagency communication and coordination for Cuba democracy assistance. These steps included providing USAID officials regular access to classified communications with USINT in Havana and State, and implementing regular meetings between DRL, the Bureau of Western Hemisphere Affairs’ Office of Cuban Affairs, the Office of the Cuba Transition Coordinator, and USAID. State also commented that— within the constraints imposed by implementing a democracy-building program in Cuba—DRL and the Office of Cuban Affairs would work closely with all grantees to identify creative ways to document the impact of Cuba programs. These new methods of documentation would attempt to measure impact beyond direct outputs (e.g., items delivered or persons trained).

USAID said it was taking actions to improve its performance in managing, monitoring, and evaluating democracy assistance for Cuba. These actions would include better documentation of USAID grantee monitoring, improved interagency communications, and a review of all aspects of the USAID procurement system as it relates to the Cuba program. Subsequent to submitting its written comments, USAID offered additional comments regarding our recommendations. USAID concurred with our first, second, third, and fifth recommendations, as well as with the part of our fourth recommendation that USAID should ensure that its staff monitors grantee expenditures. USAID concurred, in part, with our recommendation to provide grantees specific guidance on permitted types of humanitarian assistance and cost-sharing. To avoid potentially making grant documents unwieldy and difficult to use, USAID plans to continue to reference additional regulatory material regarding allowable costs and other matters in its grants. However, USAID will review its standard grant provisions to ensure that grantees are provided clear guidance regarding how to access referenced regulatory materials. USAID also is considering providing technical assistance for grants management and grant and regulatory documents to Cuba program grantees in Spanish.

State and USAID provided technical comments on a draft of this report, which we have incorporated where appropriate. In its technical comments, USAID raised some issues regarding some of our findings. However, we have worked with agency officials to resolve or clarify these matters.

We will send copies of this report to the Secretary of State, the USAID Administrator, appropriate congressional committees, and other interested parties. Copies will be made available to others upon request. In addition, this report will be made 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 David Gootnick at (202) 512-4128 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: Objectives, Scope, and Methodology

This report examines (1) the roles and objectives of the agencies implementing U.S. democracy assistance targeted at Cuba and the characteristics and selection of the grantees receiving Department of State (State) and U.S. Agency for International Development (USAID) awards; (2) the types, amounts, beneficiaries, and methods used to deliver assistance for selected grantees in 2005; (3) USAID’s monitoring and oversight of these grantees; and (4) the availability of data to evaluate whether U.S. assistance has achieved its goals.

During our review, we conducted fieldwork at USAID, State, and the Departments of Treasury (Treasury) and Commerce (Commerce) in Washington, D.C.; we also conducted work at the offices of selected grantees in Washington, D.C., and Miami, Florida. At these locations, we analyzed key records and interviewed agency officials and grantees to obtain an understanding of the processes used to select grantees, monitor their performance, assess the disbursement of funds, and evaluate project results. We also discussed Cuba democracy assistance with officials at the National Endowment for Democracy and the Council on Foreign Relations in Washington, D.C.

We conducted fieldwork at the U.S. Interests Section (USINT) in Havana, Cuba, from late June–early July 2006, where we interviewed relevant U.S. government officials and observed their activities, such as sorting, delivering, and monitoring assistance. We interviewed several leading dissidents and human rights activists—including independent librarians and journalists—and family members of political prisoners. We also interviewed foreign-embassy officials.

We conducted our work from August 2005 through September 2006 in accordance with generally accepted government auditing standards.

To identify the roles and objectives of the implementing agencies, we analyzed (1) U.S. laws authorizing democracy assistance to Cuba and related records, such as agency officials’ statements and committee reports; (2) State and USAID policy and strategy records, such as agency strategic and performance plans, budget requests, and bureau and mission performance plans; and (3) the two reports of the Commission for Assistance to a Free Cuba and related records. We also interviewed USAID, Treasury, Commerce, and State officials (including State’s Cuba Transition Coordinator) about the objectives and roles of their agencies in providing assistance to Cuba.

To examine the characteristics and selection of the grantees that received State or USAID awards in 1996–2005, we reviewed key grantee and agency records including annual reports, proposals, and Web sites for the 34 organizations that received State or USAID awards during that period; and the grants and cooperative agreements, agreement modifications, and related agency records for the 44 awards State and USAID made during that period. We analyzed this information to determine (1) the types and location of organizations that received awards; (2) whether these organizations had previously worked on democracy promotion activities; (3) the methods State and USAID used to identify and evaluate assistance proposals; and (4) selected characteristics of the awards, such as their initial amount and length, cost-sharing requirements, and any postaward modifications.

To identify the types and amounts of assistance provided by grantees, beneficiaries of this assistance, and grantees’ delivery methods, we selected a judgmental sample of 10 grantees with active awards in 2005 (see table 9). These 10 grantees were implementing 14 grants or cooperative agreements in 2005 with a total estimated budget of nearly $52 million. In selecting the grantees, we considered a range of factors to ensure our sample included a mix of large, medium, and small awards; included a mix of types of nongovernmental organizations (NGO); and covered the range of U.S. democracy assistance targeted at Cuba. We focused our detailed analysis on USAID’s grantees and agreements because State’s grants were not awarded until mid-2005. We also considered the length of time grantees had been providing U.S. democracy assistance for Cuba to ensure grantees had several years experience working with USAID. The resulting sample accounts for over 76 percent of the State and USAID awards active in 2005 for U.S. democracy assistance targeted at Cuba.

To identify these organizations’ program objectives, we analyzed grantee proposals, grants or cooperative agreements, internal authorization memorandums, and modification of assistance forms. We obtained grantees’ quarterly narrative and financial reports to USAID to identify grantees’ reported activities and to quantify the types and amounts of assistance these grantees reported sending to Cuba. To corroborate these data and to develop an understanding of grantees’ delivery methods, we interviewed representatives of these organizations in Washington, D.C., and Miami and, when possible, observed their activities. We also reviewed internal documents provided by these grantees, including procedures manuals, tracking databases and reports, and other records.

We developed an electronic database to track and analyze selected terms of the agreements in our sample, including objectives, award amounts and dates, cost-sharing amounts, modifications, sub-grant agreements, and reported activities. To test the general reliability of quantities of assistance recorded for our sample, we compared these data with other documents provided by grantees (e.g., shipment logs, tracking databases, and internal reports), documents submitted by USAID, and data provided by USINT. We also used interviews with grantee representatives to corroborate these data. Based on these general comparisons, we determined grantees’ records were sufficiently reliable for the purposes of this report.

To identify the types and amounts of assistance provided by grantees in our sample, we used our electronic database to track and summarize grantees’ individual activities, which we then used to categorize assistance types and amounts. In addition, we interviewed representatives of the grantees in our sample and select beneficiaries in Havana about their experiences.

To assess USAID’s management and internal control for monitoring grantees, we reviewed grants and cooperative agreements, interviewed agency officials and select grantees, reviewed USAID and grantee policies and procedure manuals, performed walk-throughs of grantee disbursement processes, and reviewed grantee invoices and supporting documentation. For 10 grantees, we reviewed the internal controls and related residual fiscal accountability risk. Based on our initial reviews, we performed additional expenditure testing for 3 grantees that appeared to have poor control environments. To assess grantees’ potential fiscal accountability residual risk, we reviewed the adequacy of their internal controls according to the criteria contained in our Standards for Internal Control in the Federal Government. Our procedures did not specifically address whether grantees were complying with federal laws and regulations. However, grantees expending more than $500,000 in federal funds annually are subject to the Single Audit Act. Under this act, these grantees must receive an annual audit, which includes determining whether the grantee has complied with laws, regulations, and the provisions of contracts or grant agreements that may have a direct and material effect on each of its major programs. We focused our detailed analysis on USAID’s grant oversight and did not perform similar detailed analysis of State’s grant oversight because State’s grants were not awarded until mid-2005.

We performed a detailed review of 5 of 14 grant agreements in our sample. We selected these agreements because they represented the range of Cuba program objectives outlined and were signed over an 8-year period between 1997 and 2005. A USAID official confirmed that all grant and cooperative agreements use standard language from document-generating software. The standard language is modified periodically under the direction of the USAID’s Office of Acquisition and Assistance.

To assess the monitoring and reporting of program performance information evaluation, we examined USAID, Office of Management and Budget, and other federal government policies and guidance. We also reviewed our previous reports and expert panel reports on grant accountability to identify lessons learned. To better understand the challenges of evaluating democracy assistance, we reviewed relevant literature. We also analyzed USAID Cuba program documents, grantee agreements, and modifications to identify guidance provided on reporting performance data. We also analyzed grantee quarterly reports to identify how they reported program achievements. We also assessed evaluations of U.S. assistance to Cuba, such as one grantee’s evaluation of some independent NGOs, the PricewaterhouseCoopers evaluation of the USAID Cuba program, and associated program documents.

We interviewed USAID Cuba program officials concerning their current and past program evaluation practices; program grantees in Miami and Washington, D.C., to identify the instructions and feedback they have received concerning program reporting and evaluation; USINT officials concerning their role in monitoring and reporting program performance information; and beneficiaries in Cuba about their views of the effectiveness of the U.S. democracy assistance they had received. We focused our detailed analysis on USAID’s program effectiveness because State’s grants were not awarded until mid-2005.

Both State and USAID officials provided sensitivity reviews of a draft of this report, and we followed their direction in removing potentially sensitive or classified information.

Appendix II: Comments from the Department of State

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

Appendix IV: GAO Contacts and Staff Acknowledgments

Staff Acknowledgments

In addition to the contacts named above, Phillip Herr, Michael Rohrback, Bonnie Derby, Elizabeth Guran, Keith H. Kronin, Todd M. Anderson, Cara Bauer, Lynn Cothern, and Reid Lowe made key contributions to this report. Ernie Jackson, Lauren S. Fassler, and Arthur L. James, Jr., provided technical assistance.