USAID Had Developed Processes for Awarding EFSP Funds but Lacked Guidance on Modifying Awards and Responding to Changing Market Conditions

In our March 2015 report, we found that USAID had developed processes  for awarding cash-based food assistance grants; however, it lacked  formal internal guidance for its process to approve award modifications  and provided no guidance for partners on responding to changing market  conditions that might warrant an award modification. Under the terms of the APS, USAID awards new cash-based food  assistance grants through either a competitive proposal review or an  expedited noncompetitive process. For our March 2015 report, 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. USAID lacked guidance for staff on modifying awards. 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. Twenty of these cost modifications  resulted in an increase in total funding for the 13 grants from about $91  million to about $626 million, a 591 percent increase. 2). The Syria  regional award modifications amounted to about 82 percent of the total  increase in funding for the cost modifications we reviewed. We concluded that without formal guidance, USAID cannot hold its staff  and its partners accountable for taking all necessary steps to justify and  document the modification of awards. We have yet to verify this information to determine whether it addresses  the issues we identified. Additionally, in our  March 2015 report we found that, although USAID required partners  implementing cash-based food assistance to monitor market conditions,  USAID did not provide clear guidance about how to respond when market  conditions change—for example, when and how partners might adjust  levels of assistance that beneficiaries receive. We did not find similar food price changes in Jordan and  Kenya. USAID’s Partners Had Generally Implemented Financial Controls in Projects We Reviewed; We Found Weaknesses in Risk Planning, Implementation, and Guidance

In our March 2015 report, we found that USAID relied on its implementing  partners to implement financial oversight of EFSP projects, but it did not  require them to conduct comprehensive risk assessments to plan  financial oversight activities—two key components of an internal control  framework. In addition, we found that USAID provided little or no  guidance to partners and its own staff on carrying out these components. Our March 2015 report found that for  case study projects we reviewed in four countries, 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. Control activities had weaknesses. We reviewed selected distribution documents  for three implementing partners with projects that began around 2012 in  our four case study countries (Jordan, Kenya, Niger, and Somalia). However, the directive lacked guidance on  how to estimate and report losses. In addition, we found that USAID’s guidance to  partners on financial control activities is limited. For example, USAID  lacked guidance to aid implementing partners in estimating and reporting  losses. We concluded that when implementing partners for EFSP projects have  gaps in financial guidance and limitations with regard to 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. Limitations in USAID’s field financial oversight. However,  USAID’s guidance to its FFP officers and its implementing partners on  financial oversight and reporting is limited. USAID  concurred with this recommendation.
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.
This testimony summarizes GAO's March 2015 report (GAO-15-328) that (1) reviewed USAID's processes for awarding and modifying cash-based food assistance projects and (2) assessed 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 March 2015 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 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 its review of 13 grant awards that had been modified, GAO found that cost modifications for 8 awards resulted in an increase in funding for the 13 awards from about $91 million to $626 million. According to USAID, procedures for modifying awards have been updated but GAO has yet to verify this information. GAO also found that though USAID requires partners to monitor market conditions—a key factor that may trigger an award modification—it did not provide guidance on when and how to respond to changing market conditions. GAO concluded that, until USAID institutes formal guidance, it cannot hold its staff and implementing partners accountable for taking all necessary steps to justify and document the medication of awards.
USAID relies on implementing partners for financial oversight of EFSP projects but did not require them to conduct comprehensive risk assessments to plan financial oversight activities, and it provided little related procedural guidance to partners and its own staff. For projects in four case study countries reviewed in its March 2015 report, 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's March 2015 report included recommendations to strengthen USAID's guidance for staff on approving award modifications and guidance for partners on responding to changing market conditions. GAO also made 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.