USAID Has Developed Processes for Awarding EFSP Funds, but It Lacks Guidance for Staff on Modifying Awards and for Partners on Responding to Changing Market Conditions

USAID has developed processes for awarding cash-based food  assistance grants; however, it lacks formal internal guidance for its  process to approve award modifications and provides no guidance for  partners on responding to changing market conditions that might warrant  an award modification. USAID awards new cash-based food assistance  grants through either a competitive proposal review or an expedited  noncompetitive process. We reviewed 22 proposals for new cash-based  food assistance projects that were awarded and active as of June 1,  2014; we found that USAID made 13 of these awards through its  competitive process, 7 through an abbreviated noncompetitive review,  and 2 under authorities allowing an expedited emergency response. According to USAID officials, USAID follows a similar process in  reviewing requests to modify ongoing awards, which implementing  partners may propose for a variety of reasons, such as an increase in the  number of beneficiaries within areas covered by an award or a delay in  completing cash distributions. According to USAID, its draft internal guidance for  modifying awards is under review and will be incorporated into formal  guidance in the future, but it could not provide a time frame for completing  that process. In the absence of formal guidance on that process, USAID  cannot hold its staff and its partners accountable for taking all necessary  steps to justify and document the modification of awards. No-cost modifications. Cost modifications. Eight of the 13 grant agreements had a total of 20  cost modifications that increased funding for the 13 awards from an initial  total of about $91 million to about $626 million, approximately a 591  percent increase. 8). We  also found that USAID’s implementing partners responded differently to  changing market conditions, and that USAID had not provided partners  with clear guidance on when and how to modify cash-based food  assistance projects in response to changing market conditions. USAID’s Partners Had Generally Implemented Financial Controls in Projects We Reviewed; We Found Weaknesses in Risk Planning, Implementation, and Guidance

USAID relies on its implementing partners to implement financial  oversight of EFSP projects, but it does not require them to conduct  comprehensive risk assessments to plan financial oversight activities— two key components of an internal control framework (see sidebar)—and  provides little or no guidance to partners and its own staff on these two  components. For case study projects we reviewed in four countries, we  found that neither USAID nor its implementing partners conducted  comprehensive risk assessments that address financial vulnerabilities  that may affect cash-based food assistance projects, such as  counterfeiting, diversion, and losses. We also  found that USAID’s partners had generally implemented financial controls  over cash and voucher distributions but the partners’ financial oversight  guidance had weaknesses. In  addition, we found that USAID’s guidance to partners on financial control  activities is limited. For example, USAID lacks guidance to aid  implementing partners in estimating and reporting losses. However, the directive lacked guidance on how to  estimate and report losses. When implementing partners for EFSP projects have gaps in financial  guidance and limitations with regard to the oversight of cash-based food  assistance projects, the partners may not put in place appropriate  controls for areas that are most vulnerable to fraud, diversion, and misuse  of EFSP funding. In its written comments, USAID concurred with our recommendations. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) review the U.S. Agency for International  Development’s (USAID) processes for awarding and modifying cash- based food assistance projects and (2) assess the extent to which USAID  and its implementing partners have implemented financial controls to help  ensure appropriate oversight of such projects. We also selected four case  study countries that receive EFSP grants for review—Jordan for the Syria  region, Kenya, Niger, and Somalia—and conducted fieldwork in three of  these countries (Jordan, Kenya, and Niger) where we met with officials  from the U.S. missions, implementing partners, vendors, financial  institutions, and beneficiaries, among others.
Why GAO Did This Study

For over 60 years, the United States has provided assistance to food-insecure countries primarily in the form of food commodities procured in the United States and transported overseas. In recent years, the United States has joined other major donors in increasingly providing food assistance in the form of cash or vouchers. In fiscal year 2014, U.S.-funded cash and voucher projects in 28 countries totaled about $410 million, the majority of which was for the Syria crisis, making the United States the largest single donor of cash-based food assistance. GAO was asked to review USAID's use of cash-based food assistance. In this report, GAO (1) reviews USAID's processes for awarding and modifying cash-based food assistance projects and (2) assesses the extent to which USAID and its implementing partners have implemented financial controls to help ensure appropriate oversight of such projects. GAO analyzed program data and documents for selected projects in Jordan, Kenya, Niger, and Somalia; interviewed relevant officials; and conducted fieldwork in Jordan, Kenya, and Niger.

What GAO Found

The U.S. Agency for International Development (USAID) awards new cash-based food assistance grants under its Emergency Food Security Program (EFSP) through a competitive proposal review or an expedited noncompetitive process; however, USAID lacks formal internal guidance for modifying awards. In its review of 22 grant awards, GAO found that USAID made 13 through its competitive process, 7 through an abbreviated noncompetitive review, and 2 under authorities allowing an expedited emergency response. According to USAID, the agency follows a similar process for cost modification requests. Partners may propose cost or no-cost modifications for a variety of reasons, such as an increase in the number of beneficiaries or changing market conditions affecting food prices. In a review of 13 grant awards that had been modified, GAO found that 8 had cost modifications resulting in funding for all 13 awards increasing from about $91 million to $626 million. According to USAID, draft procedures for modifying awards are under review and will be incorporated into its guidance, but it could not provide a time frame. Until USAID institutes formal guidance, it cannot hold its staff and implementing partners accountable for taking all necessary steps to justify and document the modification of awards. GAO also found that though USAID requires partners to monitor market conditions—a key factor that may trigger an award modification—it does not provide guidance on when and how to respond to changing market conditions.
USAID relies on implementing partners for financial oversight of EFSP projects but does not require them to conduct comprehensive risk assessments to plan financial oversight activities, and it provides little related procedural guidance to partners and its own staff. For projects in four case study countries, GAO found that neither USAID nor its implementing partners conducted comprehensive risk assessments to identify and mitigate financial vulnerabilities. Additionally, although USAID's partners had generally implemented financial controls over cash and voucher distributions that GAO reviewed, some partners' guidance for financial oversight had weaknesses, such as a lack of information on how to estimate and report losses. In addition, GAO found that USAID had limited guidance on financial control activities and provided no information to aid partners in estimating and reporting losses. As a result, partners may neglect to implement appropriate financial controls in areas that are most vulnerable to fraud, diversion, and misuse of EFSP funding.

What GAO Recommends

GAO is making recommendations to strengthen USAID's guidance for staff on approving award modifications and its guidance for partners on responding to changing market conditions. GAO is also making recommendations to strengthen financial oversight of cash-based food assistance projects by addressing gaps in USAID's guidance on risk assessments and mitigation plans and on financial control activities. USAID concurred with the recommendations.