USAID also provides direct assistance by awarding funds to the  multilateral World Bank-administered Afghanistan Reconstruction Trust  Fund (ARTF). The United States More Than Tripled Its Awards of Direct Assistance to Afghanistan in 2010 through USAID and DOD

The United States more than tripled its awards and contributions of  USAID and DOD direct assistance funds to the Afghan government in  fiscal year 2010 compared with fiscal year 2009 (see fig. As shown in table 2, USAID awards of direct assistance to Afghanistan  increased from over $470 million in fiscal year 2009 to more than $1.4  billion in fiscal year 2010. DOD direct assistance to MOD and MOI, including contributions to  LOTFA, grew from about $195 million in fiscal year 2009 to about $576  million in fiscal year 2010. However, we found that USAID’s policies for assessing direct  assistance risks do not require preaward risk assessments in all cases. USAID has established various financial and other controls in its bilateral  direct assistance agreements with ministries that go beyond what is required  by its policies. DOD personnel in Afghanistan have assessed the risk of providing  funds to MOD and MOI through quarterly reviews of each ministry’s capacity. Similarly, USAID documented only three  instances in which it had approved any of the Ministry of Public Health’s  19 prefinancing contract documents. USAID has taken steps to ensure that bilateral direct assistance awards  are audited. USAID Has Not Consistently Assessed Risks of Contributions to ARTF, While DOD Has Recently Established Risk Assessment Guidance for LOTFA

USAID and DOD generally rely on the World Bank and UNDP to ensure  accountability over U.S. direct assistance provided multilaterally through  ARTF and LOTFA. For example, in March 2010, USAID did not conduct a risk  assessment before awarding an additional $1.3 billion to the World Bank  for ARTF. During our review, DOD established procedures in June 2011  requiring that it assess risks before contributing funds to LOTFA. World  Bank and UNDP controls over ARTF and LOTFA funds include the use of  hired monitoring agents to help ensure that ministries use donor  contributions as intended. However, these controls face challenges posed  by security conditions and by weaknesses in Afghan ministries. For  example, the ARTF monitoring agent resigned in June 2011 due to  security concerns, while weaknesses in MOI’s systems for paying wages  to Afghan police challenge UNDP efforts to ensure that MOI is using  LOTFA funds as intended. USAID Has Not Consistently Assessed the Risk of Relying on the World Bank for Ensuring the Accountability of Its ARTF Contributions

USAID has not consistently followed its own policies for assessing the  risk associated with its awards to the World Bank for ARTF, which have  increased from $5 million in 2002 to a total of more than $2 billion. The World Bank  reports that it is seeking a new monitoring agent, has received many  expressions of interest, and does not anticipate a gap in monitoring. To safeguard U.S. direct assistance funds, it is  important that (1) the USAID Administrator follow through on his July  2010 commitment to Congress to assess risks associated with each  Afghan government entity before awarding funds, (2) USAID consistently  implement controls it establishes in bilateral direct assistance  agreements, and (3) USAID consistently adhere to its risk assessment  policies for multilateral trust funds in awarding funds to ARTF. With regard to our recommendation that USAID establish and implement  policies requiring USAID staff to complete risk assessments before  awarding bilateral direct assistance funds to Afghan government entities  in all cases, USAID stated that its existing policies and procedures in ADS  already include requirements for risk assessment for each form of  government-to-government assistance mechanism. Although USAID policy in ADS includes some form of risk assessment for  the funding mechanisms in use in Afghanistan, it does not require that a  risk assessment be conducted in all cases. Appendix I: Objectives, Scope, and Methodology

This report assesses (1) the extent to which the U.S. Agency for  International Development (USAID) and the Department of Defense  (DOD) have increased direct assistance, (2) USAID’s and DOD’s steps to  ensure accountability for bilateral direct assistance, and (3) USAID’s and  DOD’s steps to ensure accountability for multilateral direct assistance. To assess steps taken by USAID and DOD to help ensure the  accountability of their direct assistance to Afghan ministries through  multilateral trust funds, we reviewed the policies and practices the  agencies use to assess risks associated with direct assistance and to  establish control mechanisms over the use of direct assistance funds. We also reviewed United Nations Development Program (UNDP)  documents and reports concerning the Law and Order Trust Fund for  Afghanistan and interviewed DOD officials in Washington, D.C., and  in Kabul, as well as UNDP officials in Kabul.
Why GAO Did This Study

The U.S. Agency for International Development (USAID) and the Department of Defense (DOD) award direct assistance to Afghanistan, using bilateral agreements and multilateral trust funds that provide funds through the Afghan national budget. GAO assessed (1) the extent to which the United States, through USAID and DOD, has increased direct assistance, (2) USAID and DOD steps to ensure accountability for bilateral direct assistance, and (3) USAID and DOD steps to ensure accountability for direct assistance via multilateral trust funds for Afghanistan. GAO reviewed USAID, DOD, and multilateral documents and met with U.S. officials and staffs of multilateral trust funds in Washington, D.C., and Afghanistan.

What GAO Found

The United States more than tripled its awards of direct assistance to Afghanistan in fiscal year 2010 compared with fiscal year 2009. USAID awards of direct assistance grew from over $470 million in fiscal year 2009 to over $1.4 billion in fiscal year 2010. USAID awarded $1.3 billion to the World Bank-administered Afghanistan Reconstruction Trust Fund (ARTF) in fiscal year 2010, of which the bank has received $265 million as of July 2011. DOD direct assistance to two ministries grew from about $195 million in fiscal year 2009 to about $576 million in fiscal year 2010, including contributions to fund police salaries through the United Nations Development Program-administered (UNDP) Law and Order Trust Fund for Afghanistan (LOTFA). USAID and DOD have taken steps to help ensure the accountability of their bilateral direct assistance to Afghan ministries, but USAID has not required risk assessments in all cases before awarding these funds. For example, USAID did not complete preaward risk assessments in two of the eight cases GAO identified. Although current USAID policy does not require preaward risk assessments in all cases, these two awards were made after the USAID Administrator's July 2010 commitment to Congress that USAID would not proceed with direct assistance to an Afghan public institution before assessing its capabilities. In these two cases, USAID awarded $46 million to institutions whose financial management capacity were later assessed as "high risk." USAID has established various financial and other controls in its bilateral direct assistance agreements, such as requiring separate bank accounts and audits of the funds. USAID has generally complied with these controls, but GAO identified instances in which it did not. For example, in only 3 of 19 cases did USAID document that it had approved one ministry's prefinancing contract documents. DOD personnel in Afghanistan assess the risk of providing funds to two security ministries through quarterly reviews of each ministry's capacity. DOD officials also review records of ministry expenditures to assess whether ministries have used funds as intended. DOD established formal risk assessment procedures in June 2011, following GAO discussions with DOD about initial findings. USAID and DOD generally rely on the World Bank and UNDP to ensure accountability over U.S. direct assistance provided multilaterally through ARTF and LOTFA, but USAID has not consistently complied with its risk assessment policies in awarding funds to ARTF. During GAO's review, DOD established procedures in June 2011 requiring that it assess risks before contributing funds to LOTFA. The World Bank and UNDP use ARTF and LOTFA monitoring agents to help ensure that ministries use contributions as intended. However, security conditions and weaknesses in Afghan ministries pose challenges to their oversight. For example, the ARTF monitoring agent recently resigned due to security concerns. The World Bank is now seeking a new monitoring agent and does not anticipate a gap in monitoring. In addition, weaknesses in the Ministry of Interior's systems for paying wages to police challenge UNDP efforts to ensure that the ministry is using LOTFA funds as intended.

What GAO Recommends

GAO recommends that USAID (1) establish and implement policy requiring risk assessments in all cases before awarding bilateral direct assistance funds, (2) take additional steps to help ensure it implements controls for bilateral direct assistance, and (3) ensure adherence to its risk assessment policies for ARTF. In commenting on the first recommendation, USAID stated that its existing policies call for some form of risk assessment for all awards and that it has taken new steps to ensure risk assessment. GAO retained its recommendation because existing USAID policies do not require preaward risk assessments in all cases. USAID concurred with GAO's other recommendations.