	USAID Faces Challenges in Managing Contracts and Assistance Instruments

In carrying out its Afghan assistance efforts, USAID has experienced a  number of systemic challenges that have hindered its ability to manage  and oversee contracts and assistance instruments, such as grants and  cooperative agreements. These challenges include gaps in planning for  the use of contractors and assistance recipients and having visibility into  their numbers. While USAID has faced challenges, it has  also taken actions to help mitigate some of the risks associated with  awarding contracts and assistance instruments in Afghanistan. Such  findings are not new. In the absence of strategic planning for its use of contractors, we found  that it was often individual offices within USAID that made case-by-case  decisions on the use of contractors to support contract or grant  administration functions. Over the last four years, we have reported on limitations in USAID’s  visibility into the number and value of contracts and assistance  instruments with performance in Afghanistan, as well as the number of  personnel working under those contracts and assistance instruments. Having reliable, meaningful data on contractors and assistance recipients  is a starting point for informing agency decisions and ensuring proper  management and oversight. In January 2011, in  order to counter potential risks of U.S. funds being diverted to support  criminal or insurgent activity, USAID created a process for vetting  prospective non-U.S. contractors and assistance recipients (i.e.,  implementing partners) in Afghanistan. Specifically, we  recommended that USAID, the Department of Defense (which had a  vendor vetting program), and the Department of State (which did not have  a vendor vetting program comparable to USAID’s or Defense’s) should  consider developing formalized procedures, such as an interagency  agreement, to ensure the continuity of communication of vetting results  and to support intelligence information, so that other contracting activities  may be informed by those results. USAID Has Taken Some Action to Strengthen Oversight of Program Performance

We have previously reported on systematic weaknesses in USAID’s  oversight and monitoring of the performance of projects and programs  carried out by its implementing partners in Afghanistan. In 2010, we  reported that USAID did not consistently follow its established  performance management and evaluation procedures with regard to its  agriculture and water sector projects in Afghanistan.There were various  areas in which the USAID Mission to Afghanistan needed to improve. For example, only two of  seven USAID-funded agricultural programs that were active during fiscal  year 2009 and included in our review had targets for all of their indicators. We  also found that a lack of documentation of key programmatic decisions  and an insufficient method to transfer knowledge to successors had  contributed to the loss of institutional knowledge—a challenge that we  reported USAID should address. USAID concurred with these recommendations and identified several  actions the agency is taking in Afghanistan to address them, including the  following:   In 2011, USAID established mandatory technical guidance for  program monitoring officials on how to establish and where to  maintain files, in addition to key responsibilities of the office director to  ensure that files are maintained before officials leave their positions. Although USAID conducted preaward risk  assessments for most of its bilateral direct assistance to the Afghan  government, we found that USAID’s policies did not require preaward risk  assessments in all cases. For example, we reported in 2011 that USAID  did not complete preaward risk assessments, such as determining the  awardees’ capability to independently manage and account for funds, in  two of the eight cases of bilateral direct assistance. We also found that USAID established general financial and other  controls in its bilateral direct assistance agreements with Afghan  ministries, including requiring that the ministries: establish separate noncommingled bank accounts, grant USAID access rights to the bank accounts, have a monitoring and evaluation plan,  comply with periodic reporting requirements, and maintain books and records subject to audit. With respect to direct assistance provided multilaterally through public  international organizations such as the World Bank, USAID’s policy is to  generally rely on the organization’s financial management, procurement,  and audit policies and procedures. We found, however, that USAID has  not consistently complied with its multilateral trust fund risk assessment  policies in awarding funds to the World Bank’s ARTF. In response  to our findings and a prior GAO report, USAID revised and expanded its  guidance on preaward risk assessments for the World Bank and other  public international organizations. Afghanistan’s Control and Audit Office conducts audits of Afghan  government programs, including those funded by the ARTF, but  lacked qualified auditors and faced other capacity restraints,  according to the Special Inspector General for Afghanistan  Reconstruction and USAID. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

Since 2002, the United States has appropriated nearly $90 billion to help stabilize Afghanistan and build the Afghan governments capacity to provide security, enhance governance, and develop a sustainable economy. To assist Congress in its oversight, GAO has issued over 100 reports and testimonies related to U.S. efforts in Afghanistan, including those managed by USAID and the Departments of Defense and State. USAID provides assistance to Afghanistan through contracts and assistance instruments, such as grants and cooperative agreements, and in the form of direct assistancefunding provided through the Afghan national budget for use by its ministries. Direct assistance is provided (1) bilaterally to individual Afghan ministries or (2) multilaterally through trust funds administered by the World Bank and the United Nations Development Program. This testimony discusses findings from GAO reports issued primarily in 2010 and 2011 that cover USAIDs (1) management of contracts and assistance instruments, (2) oversight of development-related program performance and results, and (3) accountability for direct assistance.

What GAO Found

The U.S. Agency for International Development (USAID) has experienced systemic challenges that have hindered its ability to manage and oversee contracts and assistance instruments in Afghanistan. Key challenges include gaps in planning for the use of contractors and assistance recipients and having visibility into their numbers. For example, GAO reported in April 2010 that, absent strategic planning for its use of contractors, individual offices within USAID often made case-by-case decisions on using contractors to support contract or grant administration and risks, such as possible conflicts of interest, were not always addressed. While having reliable data on contractors and assistance recipients is a starting point for informing agency decisions and ensuring proper management, GAO has also reported on limitations in USAIDs visibility into the number and value of contracts and assistance instruments in Afghanistan, as well as the number of personnel working under them. USAID, along with other agencies, has not implemented GAOs recommendation to address such limitations. USAID, however, has taken other actions to mitigate risks associated with awarding contracts and assistance instruments in Afghanistan. In June 2011, GAO reported on USAIDs vendor vetting program, then in its early stages, which was designed to counter potential risks of U.S. funds being diverted to support criminal or insurgent activity. GAO recommended that USAID take a more risk-based approach to vet non-U.S. vendors and develop formal mechanisms to share vetting results with other agencies, both of which USAID agreed to do.
GAO has found systematic weaknesses in USAIDs oversight and monitoring of project and program performance in Afghanistan. In 2010, GAO reported that USAID did not consistently follow its established performance management and evaluation procedures for Afghanistan agriculture and water sector projects. For example, only two of seven USAID-funded agricultural programs included in GAOs review had targets for all their performance indicators. Moreover, the USAID Mission was operating without a required performance management plan. In addition, GAO reported on a lack of documentation of key programmatic decisions and an insufficient method to transfer knowledge to successors. USAID has taken several actions in response to these findings, such as updating its performance management plan and establishing mandatory guidelines on file maintenance to help ensure knowledge transfer.
USAID has established and generally complied with various financial and other controls in its direct assistance agreements, such as requiring separate bank accounts and maintenance of records subject to audit. However, GAO found in 2011 that USAID had not always assessed the financial risks in providing direct assistance to Afghan government entities before awarding funds. For example, USAID did not complete preaward risk assessments in two of eight cases of bilateral assistance GAO identified. With regard to direct assistance provided multilaterally through the World Banks Afghanistan Reconstruction Trust Fund (ARTF), GAO found in 2011 that USAID had not consistently complied with its own risk assessment policies, and USAID had not conducted a risk assessment before awarding $1.3 billion to ARTF in March 2010. In response to GAO reports, USAID revised and expanded its guidance on preaward risk assessments for the World Bank and other public international organizations.

What GAO Recommends

GAO is not making new recommendations but has made numerous recommendations aimed at improving USAIDs management and oversight of assistance funds in Afghanistan. USAID has generally concurred with most of these recommendations and has taken or planned steps to address them.