Since the 1940s, the U.S. government has assisted private voluntary organizations’ (PVO) overseas activities. After World War II, as PVOs responded to emergency needs in Europe, the U.S. government began donating excess property and supplies and financing shipping costs to assist PVOs’ efforts. The Congress authorized donations of commodities in 1954. Public Law (P.L.) 480, as amended, authorized commodity donations to voluntary agencies for distribution overseas to meet emergency and nonemergency food needs. Although still heavily involved in the provision of emergency assistance overseas, since the mid-1960s PVOs have gradually shifted their emphasis from charitable relief to development activities. The PVO community is comprised of diverse organizations from the traditional voluntary relief and development agencies to family planning organizations, labor institutes, and cooperatives. PVOs range from organizations with budgets of a few thousand dollars and narrow objectives, such as the Pan-American Association of Eye Banks, to large operations with worldwide programs and multimillion dollar budgets, such as the Cooperative for Assistance and Relief Everywhere, Inc. (CARE) and Catholic Relief Services. Literature on PVOs’ development activities describes some of the qualities that PVOs exhibit: familiarity with local populations and ability to work with the poor at the community level, innovation in approaches and flexibility in responding to development needs, lower cost compared to government-to-government aid programs, staff dedicated to the PVOs’ mission and willing to work under difficult conditions, long-term commitment to development, and ability to work with INGOs to strengthen local development capabilities. Additionally, development literature suggests that PVOs are generally weak in the areas of strategic planning, realistic planning for sustainability, and working with each other on common goals. Since the United States began providing foreign aid, its approach to development has changed several times. During the 1960s, the U.S. Agency for International Development (USAID) undertook large infrastructure projects such as dams and road construction. Then, in the early 1970s, USAID gave priority to addressing the basic human needs of the populations of developing countries. In the 1980s, USAID took a more macroeconomic approach to development, emphasizing economic growth through policy reform and a stronger private sector. None of the approaches proved to be the panacea for development problems. USAID’s current approach involves both macroeconomic reforms (legal, policy, and regulatory) and direct assistance to the poor in developing countries—to help them take advantage of economic and development opportunities. Thus, USAID has increasingly relied on PVOs to provide direct assistance while it focuses on macrolevel reforms through policy dialogue. In early 1995, USAID announced plans to increase the proportion of resources that it channels through nongovernmental organizations, including PVOs. Other recent proposals have advocated providing development assistance through a foundation that would distribute funds to PVOs and other nongovernmental organizations. Although its record of success has been mixed, USAID has access to developing countries’ governments and the technical expertise to assist them in such areas as policy analysis, sectoral reform, privatization, national programming, and structural adjustment. On the other hand, PVOs have demonstrated that they have a comparative advantage in providing direct assistance to meet varied development needs—often in areas underserved by governments. In 1993, the U.S. government provided about $1.7 billion of aid through PVOs, including $414 million in food commodities and freight. PVOs received $813 million from USAID in grants and contracts. Other U.S. government agencies provided another $439 million to PVO programs. For example, the Department of State contributes to PVOs for refugee assistance and the Department of Agriculture contributes surplus commodities for humanitarian assistance. PVOs and INGOs must register with USAID to receive grants for development assistance activities directly from USAID. As of October 1994, 419 PVOs were registered with USAID. To be registered, a PVO or INGO must, among other requirements, be a nonprofit and nongovernmental entity receiving funds from private voluntary in that it receives voluntary contributions of money, staff time, or in-kind support from the public; and engaged in or anticipating becoming engaged in voluntary charitable or development assistance operations overseas of a nonreligious nature, which are consistent with the purposes and objectives set forth in the Foreign Assistance Act and P.L. 480. USAID both supports PVOs’ independent activities and uses PVOs as intermediaries to carry out projects that USAID initiates in keeping with its own priorities. The Office of Private and Voluntary Cooperation, in the Bureau for Humanitarian Response, is the focal point for USAID work with PVOs, although other offices within USAID—including regional bureaus; the Bureau for Global Programs, Field Support and Research; the Office of Foreign Disaster Assistance, and the Office of Food for Peace—also work directly with PVOs. In countries where USAID maintains missions, PVOs can apply to the missions for funding for specific development projects in the host country. In addition to programs that are specifically restricted to registered PVOs, PVOs may also compete for other grants and contracts awarded by missions and USAID/Washington, D.C., bureaus. The objectives of our review were to examine (1) PVOs’ role in delivering USAID-funded foreign assistance; (2) potential issues and implications of increasing their role in delivering assistance, including accountability issues; (3) the success of their projects in achieving their objectives; and (4) the extent to which these organizations are dependent on U.S. government funding. We employed a combination of methods to address these issues, including (1) an extensive review of development literature to document the role PVOs play in the development spectrum (see selected bibliography), (2) discussions with U.S. and foreign government officials and PVO representatives, (3) case studies of selected projects in eight countries, (4) a collection of descriptive data on PVOs and their projects within each case study country, and (5) an analysis of financial data on PVO resources. For the case studies, we selected eight countries: Ecuador, Ghana, Honduras, Indonesia, Nepal, Niger, Romania, and Thailand. We selected these countries on the basis of the following criteria: (1) geographic balance, (2) size and diversity of PVO programs, and (3) whether PVOs used food aid in the country. We used a structured data collection instrument to collect basic descriptive data on PVO and INGO activities between 1991 and 1994. To review the success of PVOs in meeting their objectives and enhancing sustainable development, we conducted 26 case studies, including at least 2 projects in each country carried out by different PVOs in different development sectors. We used project design, implementation, and evaluation documentation; on-site observations of projects; and extensive interviews with USAID, PVO, and host government officials to assess projects as more or less successful relative to the projects’ success in meeting their objectives, including developing local capacity. To determine the degree to which projects met their objectives, we considered factors such as whether (1) projects were meeting agreed-upon measurable benchmarks or indicators within agreed costs and time frames and (2) outcomes achieved project goals. In many cases, indicators were not quantifiable, so we based our judgment on on-site observations of projects and interviews with USAID and PVO officials about intended project outcomes. We supplemented the fieldwork undertaken specifically to answer this request with information generated in the course of our other work in the last 3 years, including reports on P.L. 480 titles II and III and PVOs’ role in food aid. To assess the degree to which PVOs depend on federal funding, we examined data on private and federal funding published in Voluntary Foreign Aid Programs, an annual publication of USAID’s Bureau for Humanitarian Response. We analyzed the data from 1982 to 1992, the last year for which complete information was available, after converting dollar amounts into constant 1992 dollars. We did not independently verify the published information, although we worked with USAID to resolve apparent errors in the data. We performed our work from November 1993 through April 1995 in accordance with generally accepted government auditing standards. PVOs, as a group, work in many different sectors—from providing health services to pollution control to microenterprise development. They often work in remote areas where governments cannot or do not provide services. Some PVOs use U.S. volunteers to deliver technical services or assistance to developing countries. PVOs sponsor projects in many different sectors, including agriculture, education, environment, health and child survival, and small-enterprise development, designed to address the many needs of people in developing countries. Almost 30 percent of 274 USAID-funded PVO and INGO projects operating in the 8 countries in our review included health activities. Natural resources management, private sector development, and democracy were the next most frequently addressed issues—about 15 percent of projects addressed each of these issues. Other projects focused on labor, agriculture, and education, among other sectors. In several cases, PVO projects provided services in areas not served by the host government. The 26 projects we examined in detail represent the diverse areas of needs PVOs try to address. For example, one of the USAID-supported PVO projects addressed health and nutritional needs of children in Ghana. In Romania, several projects focused on the needs of institutionalized and orphaned children, while another PVO worked with state-owned enterprises to abate pollution. Projects in Nepal, Honduras, and Thailand sought to increase economic opportunities for women who traditionally have few opportunities for economic advancement—two by providing credit and technical assistance to microenterprises owned by women or employing women and one by providing scholarships to girls so they could continue their schooling. (See fig. 2.1 for a project supported by CARE in Thailand.) In Ghana, we examined a PVO agroforestry project. In Honduras and Indonesia, our sample included PVO projects to help communities to build water and sewer systems. PVO food aid projects we visited in Ghana, Honduras, and Indonesia either directly distributed food to beneficiaries or sold commodities to generate funds for development projects. Direct feeding projects included mother-child health projects that targeted malnourished children and pregnant or lactating women and school feeding projects in poor regions. Food-for-work projects are generally assumed to be self-targeting to the poorest because the work is generally difficult and the wages low. (See figs. 2.2 and 2.3 for food-for-work projects in Honduras and Ghana.) PVOs often conducted projects in remote areas not adequately served by the governments of developing countries. For example, in Ecuador, Catholic Relief Services and Project HOPE conducted child survival projects that provided immunizations and education on hygiene and nutrition to rural areas. (See fig. 2.4 for a child survival project in Ecuador.) In Niger, Africare provided training for community health workers in Diffa, an isolated area more than 900 kilometers from Niamey, the capital of Niger. Save the Children/Honduras and CARE in Indonesia were assisting in construction of water and sewer systems in remote areas. (See fig. 2.5 for a water system project in Honduras.) In Nepal, PVOs provide most medical services. USAID officials told us that PVOs fill critical voids in health and community development. About 15 percent of PVOs registered with USAID in 1993 used American volunteers in their overseas programs, according to information contained in USAID’s report on voluntary foreign assistance. Some PVOs coordinate volunteer service abroad to provide specialized services or technical assistance not available in developing countries, which, according to these PVOs, would be costly to provide through contractors. For example, health sector PVOs, such as Operation Smile International and Project ORBIS International, coordinate medical volunteers to provide medical care and train health workers. The Farmer-to-Farmer program in the former Soviet Union and worldwide included 8 PVOs and cooperatives and the Peace Corps that coordinated over 1,300 volunteer assignments to provide expertise on agricultural production and processes in over 60 developing countries worldwide and expected to field about 1,700 volunteers to the newly independent states of the former Soviet Union. The International Executive Service Corps and Volunteers in Overseas Cooperative Assistance recruit volunteers to provide consulting services to private sector businesses in developing countries. According to information supplied by the International Executive Service Corps, it delivered almost 75,000-person days of assistance in 1994 through its offices in 50 countries at an average cost of $439 per day. According to PVO representatives, volunteers are generally well received by the citizens of the developing country because they are viewed as experts who volunteer their time and are not perceived as having the political agendas sometimes associated with bilateral assistance or the profit motive of contractors. (See fig. 2.6 for a volunteer project in Romania.) However, the use of volunteers presents potential problems. For example, lack of language skills and cultural sensitivity on the part of volunteers and inability to adapt to living conditions in developing countries have limited the success of some volunteer experiences. Project evaluations and USAID and PVO officials noted that clear expectations on the parts of both the volunteers and the recipients of their services are critical to the success of the visit. They also stressed the importance of an in-country structure to (1) identify specific needs so that volunteers with appropriate skills can be found and (2) continue contact with recipients of the assistance to facilitate implementation of volunteers’ recommendations. While a few PVOs have begun to work with governments of developing countries on policy reforms, many believe they have a humanitarian mission and would prefer to focus on person-to-person aid rather than work with large institutions. PVOs have a comparative advantage in being able to work directly with the poor, or with organizations that represent the poor, than major donors can. Some PVOs prefer not to interact with host governments and, as outside entities, may not have access or leverage within a country’s government. In addition, many PVOs do not want to be seen as linked too closely to the U.S. government. Thus, providing economic assistance exclusively through nongovernmental organizations could limit the degree to which the United States can use such aid to achieve foreign policy interests other than supporting democratic development. In addition, channeling U.S. aid exclusively through PVOs also seems inconsistent with the current view of many U.S. government leaders that there should be a close link between the provision of U.S. assistance and specific U.S. foreign policy interests. Former foreign policy officials testified before the Senate Committee on Foreign Relations in March 1995 that “bilateral foreign assistance programs should be directly related to specific, identifiable U.S. foreign policy interests.” Currently, the Congress looks to USAID to ensure that U.S. assistance is used efficiently and effectively. In recent years, USAID has encouraged PVOs and INGOs to develop stronger financial management skills that would help ensure accountability for resources. Regulations requiring external audits, such as Office of Management and Budget Circulars A-110 and A-133, have also led PVOs to focus on improving financial management systems. USAID and InterAction believe the PVO community generally has taken seriously its responsibility to improve financial and program management.However, some PVOs and particularly INGOs still have difficulties in meeting U.S. accountability standards. For example, USAID’s Inspector General recently reviewed PVO activities in the West Bank/Gaza and found that while PVOs generally had the capability to implement USAID programs, two of the six needed to improve program monitoring, two needed to improve financial management, and four did not maintain adequate inventory records of USAID-funded commodities. Additionally, a recent audit of a PVO project in El Salvador discovered that funds had been misappropriated through false village banks and dummy loans. As of September 1995, $118,000 in USAID funds had not been recovered. The PVO reported that the USAID mission, the PVO, and the INGO have been working closely to address weaknesses that were exposed once the problem was discovered. Providing assistance funds directly to PVOs or through a foundation, as suggested in some of the reform proposals, would eliminate a key accountability mechanism from the U.S. foreign assistance program, and the Congress would have to accept more risk and less accountability for funds expended. We used criteria from development literature as the basis for our detailed assessment of 26 PVO projects: (1) progress toward meeting objectives and (2) building local capacity. While all projects experienced some unanticipated challenges in implementation, 20 of the 26 projects were making progress toward meeting all or most of their objectives. These projects resulted in accomplishments such as construction of water systems, improved provision of health care, and increased incomes for participants. Two projects were having major difficulties in attaining their objectives due to design or implementation problems. We were unable to assess the progress of four projects because their objectives and associated PVO or USAID evaluations were too general. We found no correlation between the size, geographic region, or sectoral emphasis of a PVO and its ability to achieve project objectives. In recent years, PVOs have begun working extensively with local groups that carry out projects, offering technical assistance and training to build institutional capacity designed to increase local capacity, rather than doing the projects with their own staffs. Most projects we reviewed included some activities designed to improve local capacity. (App. I contains the details of our 26 case studies.) The 20 projects in our case study that were making progress toward their objectives reflected a combination of the factors identified in development literature as being necessary for successful projects: good design and clear objectives, experience in the country and the development sector, qualified management and staff, and local participation. The following examples illustrate some of these factors: In Nepal, a $328,000 female education scholarship project sponsored by the Asia Foundation used a tested design and had local participation through its INGO partner, which had strong leadership that found creative solutions to problems the project encountered. As a result of the project, girls’ school attendance increased in every district where the project was implemented. USAID provided Katalysis $1.75 million to strengthen local INGOs in three countries, including Honduras. In Honduras, the INGO partner conducted projects aimed at increasing participants’ incomes. Katalysis provided technical assistance for the INGO in a wide range of areas such as long-range planning, information management systems, and fund raising. The PVO had good project design, which included local input and clear objectives, and had capable staff. The INGO ultimately designed and carried out a project that increased incomes of beneficiaries. In Ecuador, USAID provided $1.5 million to Project HOPE to develop a community health model with the goal of reducing sickness and death in children and women of childbearing age. The PVO had expertise in the sector and prior work in the country. The project had good management and design, and active community participation. The project was effective in increasing participation and extending health care coverage. (Fig. 3.1 shows a parade and banner advertising diarrhea prevention and treatment.) In Indonesia, USAID provided about $2.05 million in food aid to CARE to be sold to fund a pilot rural water and sanitation project. The project’s objectives were to increase access and use of water and sanitation facilities among villages in rural Indonesia and demonstrate that rural communities could develop and self-finance improved facilities. The PVO used proven technical approaches and the design included measurable objectives. Rather than working with an INGO, CARE employed local staff to work directly with the communities to plan and carry out the construction of water systems, including designing and building the appropriate system. (Fig. 3.2 shows the resulting water reservoir that is filled by gravity from a spring 400 meters away.) The communities agreed to take responsibility for sustaining the improvements. An outside evaluation of the program concluded that CARE’s approach was successful in creating sustainable water sanitation systems. Beneficiaries of the project in one village told us that the incidence of cholera had decreased since the system was built and that villagers could spend the 2 hours a day they had spent hauling water on more productive activities. The projects that were having the most difficulties suffered from poor design, inadequate project management, and lack of participation by the local community. The following describes some of the problems evident in the projects we examined: In Romania, USAID contributed $200,000 to a $1.02 million World Vision health care project to improve the delivery of primary health care services. The project was delayed almost a year due to internal management problems and difficulties in recruiting suitable staff. Further, the PVO met with difficulties in working with Ministry of Health officials because of changes in leadership there. A mid-term evaluation concluded that the achievements of the project at that date were mixed and could not always be clearly linked to project goals or to activities carried out. The final evaluation of the program, conducted after our fieldwork, noted that the conditions we observed had changed and the project achieved its objectives. The evaluation cited accomplishments in improving health knowledge, attitudes, and behaviors. In Niger, USAID provided Africare $1.8 million for a project to train community health workers in child survival techniques such as oral rehydration, growth monitoring, and nutrition. The project was delayed over 6 months due to difficulties in recruiting project personnel. The project design was flawed in that it was not integrated into the Ministry of Health’s program, so no local level officials took responsibility. Further, although Ministry of Health nurses were trained, the nurses refused to train village health workers unless they received additional pay to ensure their cooperation. When USAID and the PVO were unwilling to provide additional pay, project activities were slowed. Supervision of project personnel and monitoring of field activities were inadequate, and Peace Corps volunteers working with the project complained that the PVO did not provide them adequate guidance. There was little community participation in the village health program the project set up. Africare stated that the problems identified in the draft had been addressed and that the project is now an integral part of Ministry of Health activities. PVO projects are not immune to some of the traditional problems in development, including difficulties identifying and retaining qualified staff and lack of support from local and national governments, as the following examples show: In Ecuador, Catholic Relief Services had difficulties implementing its infant growth monitoring activities because the beneficiaries could not read and were unable to keep accurate records. In Romania, USAID provided Project Concern International $1 million to (1) train Romanians in obstetric and neonatal health care and (2) establish a model facility for institutionalized adolescents who can be assisted to function independently. The project successfully renovated a facility (see fig. 3.3) and trained staff for a transitional living center to teach handicapped adolescents independent living and job skills. However, the PVO encountered resistance from Romanian institutions that were reluctant to release adolescents into the private center. At the time of our visit, only 6 children lived at the center designed and staffed to accommodate 40 residents. Project Concern was working with the Romanian government and institutional officials to resolve such problems. One concern about development projects is their sustainability. Sustainability is often affected by the level of local participation in planning and carrying out project activities. USAID has encouraged PVOs to work closely in implementing projects with local counterpart organizations, including national and local governments and INGOs, to strengthen the in-country development capacity. Those projects that respond to the development priorities of the intended beneficiaries have been shown to have the best prospects for sustainability, according to development literature. Since strengthening local capacity is fundamental to a country’s long-term social and economic development, we examined the extent to which local persons and groups were involved in planning and carrying out project activities. Of the 241 projects in our inventory for which the information was available, 146 (61 percent) involved one or more INGOs. INGOs were project implementors in at least one-third of the projects. For example, Private Agencies Collaborating Together provided technical assistance to local organizations that worked directly with street children in Thailand. In Indonesia, the National Cooperative Business Association supported local cooperatives in export-oriented businesses in furniture and spices (see fig. 3.4). Efforts to involve INGOs in planning and carrying out projects were apparent in most of the 26 projects we reviewed in detail. Twenty-one projects involved at least one local governmental or nongovernmental organization in carrying out activities. Five projects focused specifically on strengthening INGOs, primarily by providing technical assistance and training to local organizations. Three projects focused on strengthening some aspect of the developing countries’ government service delivery mechanisms. For example, in Ecuador, Project HOPE worked with the Ministry of Health to train community health workers, and in Romania, World Vision worked with the Ministry of Health to improve primary health strategies and service delivery. In Honduras, CARE worked with the Ministry of Education on a school feeding program that included daily meals to nearly 298,000 poor children at 3,743 schools. Others worked directly with community groups, in some cases organizing residents for a particular purpose. Beneficiaries of assistance, including community groups, were more likely to be involved in implementing projects and adapting existing designs to local conditions than they were to be involved in the design process. One project we examined in Ghana demonstrates the need for local involvement in planning and designing projects. In this case, USAID provided the Adventist Development and Relief Agency about $459,000 in fiscal year 1993 in food commodities and cash grants to support a project to establish self-financing nurseries to grow and sell seedlings that villagers would plant for later harvest and sale. However, the project did not have local participation in design and did not take into account key environmental and economic factors, including lack of demand for seedlings. The project, according to an independent evaluation, was “conceptualized, was designed, and is managed by outsiders (both expatriate and Ghanaian) to funnel into villages a commodity (wood trees) that was and is low on the scale of locally perceived priorities.” While the project set up the nurseries and trained local staff paid with donated food, the lack of demand for seedlings made it unlikely that the nurseries could be self-sustaining. Further, the Peace Corps workers that had initially set up and managed the nurseries were supposed to turn management responsibilities over to the beneficiaries. However, no time period was set for a phase over of responsibilities and, according to an outside evaluator, there was no clearly defined withdrawal scenario in project documents. According to project evaluations, no nurseries had been turned over to local management 3 years after the project started. USAID and the PVO have informed us that the problems identified during our fieldwork have been addressed and that the project is showing positive results. The PVO hopes to turn management of the project over to local workers beginning in 1996. During our fieldwork, USAID officials in Washington and the field noted that some PVOs have been more successful than others in developing INGOs and turning over direct service activities to the local organizations. According to USAID officials, PVOs that have developed expertise in and networks for charitable service delivery in particular countries have tended to move less quickly toward working with INGOs than PVOs that see their role as enabling INGOs to serve their local communities. Despite their status as private, nongovernmental organizations, many PVOs receive significant amounts of federal funding. However, we found that PVOs generally are less dependent on government funding than they were a decade or more ago—although some individual PVO in-country projects are funded entirely by USAID. While federal spending on PVOs has increased in absolute terms since 1982, the percentage of total PVO resources coming from the federal government has decreased 13 percent (for PVOs that receive federal funds), from 42 percent in 1982 to 29 percent in 1992. This is because private donations have increased at a much faster rate than federal funding. PVOs must be registered with USAID to receive direct funding for purposes other than disaster assistance. In 1992, 231 registered PVOs received federal funding—an 83-percent increase from the 1982 total of 126. To qualify for development assistance funding, PVOs must show a minimum level of private funding (20 percent). This “privateness” calculation represents PVOs’ total resources and not their contributions to the costs of specific projects. Our analyses of data for PVOs that receive federal funding show that reliance on government funding declined for many federally-supported PVOs between 1982 and 1992. Total private funding for PVOs receiving federal funds grew from $1.3 billion in 1982 to $3.4 billion in 1992 (in constant 1992 dollars), a 160-percent increase. In contrast, federal funding for PVOs fluctuated over this period—dropping to a low of $0.9 billion in 1984 and peaking at $1.5 billion in 1992, a 41-percent increase from the 1982 level of $1.07 billion (see fig. 4.1). The median level of private funding for PVOs that received federal funding more than doubled, growing from $1.3 million in 1982 to $2.7 million in 1992, after peaking at $3.4 million in 1989. Appendix II shows the distribution of PVOs by levels of federal funding from 1982 to 1992, and appendix III shows PVOs’ federal funding as a share of total funding in 1982 and 1992. While federally supported PVOs received a median of 36 percent of their total support from federal sources in 1982, in 1992 they received 23 percent. The median amount of federal funding, in constant 1992 dollars, for PVOs that received any federal funding decreased 31 percent, from $929,487 to $639,136 after peaking at $1.5 million in 1986 (see fig. 4.2). This decline was partly due to the increase in the number of PVOs that received federal funding and the relatively smaller increase in federal funding for PVOs. A smaller percentage of PVOs depended on government funding for a substantial portion of their resources in 1992 than in 1982. In 1982, the 44 percent that received federal funding received at least half of their total funding from government sources; in 1992, only 24 percent did. Similarly, the proportion of PVOs that received 80 percent or more of their funding from the government declined from 22 percent to 10 percent (see fig. 4.3). However, some PVOs still received a large percentage of their resources from the U.S. government. For example, Catholic Relief Services and CARE have consistently received the largest amounts of federal support among PVOs, much of it in the form of food aid. Catholic Relief Services received 69 percent of its total revenues from the U.S. government in 1982 and 76 percent in 1992. Catholic Relief Services pointed out that if food aid is deducted from the 1992 figures, the percentage of U.S. government resources would be reduced from 76 percent to 38 percent. CARE also received significant U.S. support—60 percent of its 1992 revenues came from the U.S. government, although this is a decrease from 78 percent in 1982. Total resources for PVOs that received federal funding grew from a median of $3.6 million in 1982 to $5.2 million in 1992 (in constant 1992 dollars), peaking in 1986 at $7.3 million. In 1992, five PVOs had resources totaling over $200 million, and all of them received federal funding. Three of these PVOs were also the largest PVOs in 1982. The share of total federal funding going to the top 5 percent of federally funded PVOs decreased from about 71 percent in 1982 (when 6 PVOs received $762.4 million) to about 59 percent in 1992 (when 11 PVOs received $893.6 million). The 5 percent of PVOs that got the smallest amounts of federal funding received less than $12,800 each in 1982 and less than $10,850 in 1992, or 0.005 and 0.006 percent of federal funding in the respective years. In addition, 153 registered PVOs did not receive any federal funding in 1992, compared to 18 in 1982. The preceding data on PVOs’ total financial resources provides a view of decreasing financial dependence on the U.S. government, but it is also necessary to examine how PVOs work with USAID on specific projects to understand the issue of dependency. Although virtually all PVOs have some private resources, PVOs must make choices about how much of their private funding to devote to USAID projects and how much to spend on self-determined, self-supported activities. Until July 1994, USAID generally required PVOs to contribute at least 25 percent toward the costs of PVO projects supported through USAID grants. This cost-sharing requirement was meant to ensure that PVOs were committed to their USAID-funded projects and to enhance the likelihood that project activities and benefits would be sustained after USAID funding ends. The requirement was also seen as a means of mobilizing additional funding for projects and a mechanism to prevent PVO financial and programmatic dependence on USAID. However, PVO officials told us that cost sharing at the 25-percent level was often difficult on large dollar-value projects, especially for smaller PVOs. For example, a $2 million USAID project might require a $500,000 contribution from the grantee. In addition, because PVOs did not always want to use private resources to meet USAID’s priorities, USAID’s choice of PVO partners was sometimes limited. Because of these problems, USAID changed its policy to encourage, but not require, cost sharing for these grants. USAID’s new policy allows more flexibility in determining the cost-sharing level: it encourages the “largest reasonable and possible” level of cost sharing without specifying any minimum. This policy change makes USAID treatment of PVOs more consistent with its treatment of other grantees, such as universities and other nonprofit organizations, which are not required to make any minimum level of financial contribution to USAID-funded projects. USAID stated that the purpose of the revision of the cost-sharing policy was to standardize and streamline policy and process, not to eliminate USAID’s preference for PVOs’ 25-percent contributions to USAID activities. USAID stated it does not expect overall PVO contributions to USAID activities to lessen as a result of this policy.

Summary: Pursuant to a congressional request, GAO reviewed private voluntary organizations' (PVO) role in delivering federally funded foreign assistance, focusing on the: (1) implications of increasing PVO role in delivering assistance; (2) success of PVO projects in achieving their objectives; and (3) extent to which PVO are dependent on U.S. government funding. GAO found that: (1) the PVO community encompasses organizations of varying sizes, missions, geographic focuses, and capabilities, and they work to address varied development needs; (2) PVOs serve as a complement to traditional government-to-government assistance and can be a mechanism to strengthen indigenous community-level organizations; (3) while PVOs have demonstrated that they are generally effective in carrying out community-based development projects, most have not had wide experience in working with governments and institutions on sectoral and macroeconomic policy reforms necessary to create an environment favorable to development; (4) twenty of the 26 PVO projects GAO reviewed were making progress toward their objectives, and good project design, competent in-country staff, and local participation were factors common to the most successful projects; (5) PVOs are increasingly using local groups to carry out projects, which should increase the local capacity for development; (6) most projects GAO reviewed included local capacity building, which is critical to long-term development and sustainability; (7) accountability for Agency for International Development (AID) assistance funds has been a continuing concern, and over the last decade, AID has encouraged and assisted PVOs to improve their program and financial management systems; (8) providing increased amounts of foreign aid directly through PVOs or through a foundation, as suggested in some reform proposals, would remove a key accountability mechanism from the U.S. foreign assistance programs; (9) although some individual PVO projects may be funded entirely by AID, PVOs, as a group, have become less dependent on U.S. funding; (10) federal funding as a share of total funding for PVOs receiving federal support dropped from 42 percent to 29 percent between 1982 and 1992; and (11) U.S. funding for PVOs has increased, but private resources have increased faster.