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entitled 'Foreign Assistance: Recent Improvements Made, but USAID 
Should Do More to Help Ensure Aid Is Not Provided for Terrorist 
Activities in West Bank and Gaza' which was released on October 02, 
2006. 

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September 29, 2006: 

The Honorable Mitch McConnell: 
Chairman: 
The Honorable Patrick J. Leahy: 
Ranking Minority Member: 
Subcommittee on State, Foreign Operations,and Related Programs: 
Committee on Appropriations: 
United States Senate: 

The Honorable Jim Kolbe: 
Chairman: 
The Honorable Nita M. Lowey: 
Ranking Minority Member: 
Subcommittee on Foreign Operations,Export Financing, and Related 
Programs: 
Committee on Appropriations: 
House of Representatives: 

Subject: Foreign Assistance: Recent Improvements Made, but USAID Should 
Do More to Help Ensure Aid Is Not Provided for Terrorist Activities in 
West Bank and Gaza: 

The United States has worked for decades to achieve a resolution to the 
Israeli-Palestinian conflict through initiatives such as the 1993 Oslo 
Accords and the more recent 2003 Roadmap for Peace. During fiscal years 
1993 through 2005, the United States provided more than $2 billion in 
assistance to Palestinians in the West Bank and Gaza, including nearly 
$275 million in fiscal year 2005, to help achieve this goal. In 
particular, the 2005 assistance was provided to support the president 
of the Palestinian Authority, elected in January 2005, and to 
facilitate the Israeli disengagement from parts of the West Bank and 
Gaza, among other things. This assistance, primarily administered by 
the U.S. Agency for International Development (USAID), has been 
directed mainly toward five development sectors: economic growth, water 
and infrastructure, democracy and governance, health, and higher 
education. 

In recent years, the United States has taken several steps to help 
ensure that U.S. resources, including its aid to the West Bank and 
Gaza, do not support terrorist activities. On September 23, 2001, 
President Bush issued an executive order prohibiting the support of any 
organizations or individuals that have been designated as 
terrorists.[Footnote 1] Since 2001, to implement the executive order 
and other antiterrorism provisions in various subsequent appropriations 
acts,[Footnote 2] USAID, in consultation with the Department of State, 
Congress, and others, developed a number of provisions to help ensure 
that its assistance is not delivered to or through terrorists. In 
addition, the USAID mission for the West Bank and Gaza (the mission) 
developed policies and procedures to implement antiterrorism provisions 
for the awards it administers. The provisions that were in effect for 
assistance delivered through contracts, grants, and cooperative 
agreements active in 2005[Footnote 3] included (1) the vetting of 
certain non-U.S. prime awardees and subawardees for terrorist 
connections; (2) certifications by all prime awardees and subawardees 
of grants and cooperative agreements that they have not assisted and do 
not assist terrorists; and (3) a clause in all awards and related 
subawards prohibiting the support of terrorists (antiterrorism clause) 
and clauses in all prime awards prohibiting (a) the use of U.S. funds 
to recognize or honor terrorists (naming clause) and (b) the provision 
of cash to the Palestinian Authority (cash clause). 

Responding to a 2005 mandate to the Comptroller General of the United 
States, we examined fiscal year 2005 assistance to the West Bank and 
Gaza to, among other things, ensure that the required antiterrorism 
measures were implemented.[Footnote 4] In addition, we reviewed the 
financial audit reports of West Bank and Gaza contractors and grantees 
(and significant subcontractors and subgrantees) prepared by the USAID 
Office of the Regional Inspector General-Cairo (RIG) in response to a 
2003 mandate and subsequent mandates.[Footnote 5] Among other things, 
the audits examined the awardees' compliance with antiterrorism 
provisions. 

To address these objectives, we reviewed the relevant laws and 
executive orders and USAID's directives, internal memorandums, 
operating procedures, and guidance for assistance-related antiterrorism 
measures. We focused on USAID's implementation of procedures related to 
vetting and antiterrorism certification and clauses. We developed a 
database of USAID West Bank and Gaza awards to capture and summarize 
their characteristics and requirements. We traveled to Tel Aviv, 
Israel, and met with cognizant West Bank and Gaza mission officials, 
including the USAID Mission Director and his senior staff. We examined 
an unclassified USAID West Bank and Gaza mission database designed to 
help the mission manage its vetting, and we analyzed 99 USAID 
contracts, grants, and cooperative agreements and over 900 related 
subawards that were associated with awards active during 2005 to 
determine whether they had the required certifications and clauses. We 
also met with the mission's staff responsible for overseeing the 
various awards and related subawards. In addition, we traveled to 
Cairo, Egypt, and met with USAID officials at the RIG and reviewed and 
analyzed the contents of 62 audit reports that it had completed, which 
addressed West Bank and Gaza assistance for awards active from 2002 
through 2005 (with corresponding reports issued from 2004 through 
2006). We conducted our review from October 2005 through August 2006 in 
accordance with generally accepted government auditing standards. (For 
further details of our scope and methodology, see enc. I.) 

Results in Brief: 

The mission's implementation of its antiterrorism requirements for 
vetting, certification, and clauses for awards active in fiscal year 
2005 had certain limitations. However, the mission has taken, or is 
taking steps, to resolve many of these problems. 

* Until June 2006, the mission did not routinely collect detailed 
identifying information on individuals, such as date and place of 
birth, or verify that information. Approximately 94 percent of the 
vetting results memorandums indicated that additional information, such 
as an individual's date and place of birth and an Israeli 
identification number, was needed for a more complete assessment. 
Further, we found that the mission had not established procedures, such 
as requesting some form of identification, to verify the accuracy of 
key individuals' names provided by awardees.[Footnote 6] The mission 
drafted a policy in June 2006 to collect additional identifying 
information and in its comments stated that it would take action to 
improve its ability to verify the information provided by awardees. In 
addition, in March 2006, although the mission added certain conditions 
that would trigger revetting of awardees, the mission eliminated a 
requirement to periodically revet certain awardees, thus reducing the 
chances of identifying terrorist connections with more recent 
intelligence information. However, in its comments on a draft of this 
report it agreed with our recommendation and has reinstituted the 
periodic revetting requirement. 

* Data reliability issues, security weaknesses, and other problems with 
the mission's unclassified database, which is designed to record and 
track vetting results, limited its utility for management and oversight 
purposes. We found important data fields that were left blank or filled 
with inappropriate information. Also, a foreign service national 
developed the database counter to State internal regulations, and few 
safeguards were in place to control access to hard copies of the 
information stored in the database. In April 2006, a USAID team of 
information specialists began addressing these problems, and cognizant 
USAID officials told us they expect to have a more useful and secure 
unclassified vetting management database in operation later this year. 

* Although the mission generally ensured that prime awardees signed the 
required certifications, many prime awards did not contain the required 
clauses and, until recently, the mission did not systematically verify 
that recipients of subawards signed the required certifications or that 
subawards contained the mandatory clauses. In some cases, the required 
clauses did not appear or had been added months or years after award 
initiation, including after our inquiry. Consequently, some prime 
awardees and subawardees may not have been aware of their contractual 
obligations to comply with certain antiterrorism provisions. In 
response to our observations, the mission revised its policy in March 
2006 to require that before award approval, all prime awardees submit 
subawardee certifications as well as evidence that the required clauses 
were included in the subawards. The mission has not, however, clearly 
articulated how its antiterrorism provisions are applied to assistance 
agreements such as memorandums of understanding and consulting 
agreements, and as a result, it has applied these provisions 
inconsistently. 

To address the 2003 mandate and subsequent related mandates for 
financial audits of West Bank and Gaza assistance, USAID's RIG 
contracted with audit firms in the region.[Footnote 7] The RIG added 
the requirement for reviewing antiterrorism provisions to its audits in 
supplementary guidance in 2003. Since then, the RIG has prepared 62 
reports, issued from 2004 through 2006, based on the contract auditors' 
reviews. However, although the mandate was addressed, the RIG's 
financial audits did not help the mission ensure that awardees complied 
with the antiterrorism requirements before awards and subawards were 
entered into. In particular, the nature of the RIG's financial audits 
means the audits were not initiated until after the award had been 
implemented or, in some cases, completed. This means that any omissions 
in conducting the required vetting or ensuring that the antiterrorism 
certifications and clauses were in the awards, as required, were not 
found by the auditors until after the award had been entered into. In 
addition, 

* The guidance to the RIG's contract auditors did not always reflect 
the mission's antiterrorism policies and procedures. For example, the 
2003, 2004, and 2005 guidance directed auditors to check for a less 
detailed version of the antiterrorism clause than the mission was 
using. 

* The October 2003 guidance provided that all subawards should be 
examined rather than a sample. However, this requirement was not in the 
guidance to auditors for 2004 and 2005. Unless the auditors were 
otherwise aware of the 2003 guidance, they may not have reviewed all 
subawards. 

We are making several recommendations to the Director of U.S. Foreign 
Assistance and USAID Administrator to strengthen the mission's efforts 
to help ensure that U.S. assistance to the West Bank and Gaza does not 
support terrorist activities, including addressing limitations with the 
mission's vetting management database and developing antiterrorism 
policies and procedures for all its financial agreements. We also 
recommend that the Director of U.S. Foreign Assistance and USAID 
Administrator and the West Bank and Gaza mission, in cooperation with 
the RIG, develop a system to review awards and applicable subawards to 
help ensure that antiterrorism requirements are met before the 
financial agreements are implemented. This system should also ensure 
that the reviews (1) reflect the mission's policies and procedures at 
the time of the award and (2) have a consistent methodology for 
examining subawards. 

In commenting on a draft of this report, USAID and the USAID Inspector 
General generally accepted four of our five recommendations. USAID 
noted that our fieldwork and the draft report were a positive 
contribution to improving and strengthening the West Bank and Gaza 
mission's antiterrorism provisions. However, the mission disagreed on 
our recommendation on the need to develop policies and procedures for 
applying antiterrorism provisions to other assistance agreements, such 
as memorandums of understanding and purchase orders. Although the 
mission added guidance regarding in-kind assistance to its mission 
order, USAID commented that further clarification for applying 
antiterrorism provisions to other assistance agreements such as 
memorandums of understanding was not needed. We believe that further 
clarification is needed in the mission order to ensure that 
antiterrorism provisions are correctly and consistently applied to all 
agreements. In addition, USAID noted that the mission has taken steps 
that address the intent of our recommendation to ensure compliance with 
antiterrorism provisions before awards and subawards are implemented. 

Background: 

The Palestinian territories, comprising the West Bank and Gaza, cover 
2,402 square miles and have a combined population of 3.8 million 
people.[Footnote 8] Gaza is administered by the Palestinian Authority, 
while the West Bank includes areas administered by the authority and 
Israel. (See fig. 1.) 

Figure 1: Map of West Bank and Gaza and Surrounding Countries: 

[See PDF for Image] 

Sources: GAO (data); Map Resources (map) and CIA World Factbook. 

[End of Figure] 

In 1993, the Oslo Peace Accords[Footnote 9] were signed and USAID 
established its West Bank and Gaza mission in Tel Aviv. In September 
2000, the second intifada (uprising) began and the Oslo peace process 
unraveled. Peace efforts were renewed in June 2002 when President 
George W. Bush outlined the principles that served as the foundation 
for a performance-based strategy called the Roadmap for Peace, which 
calls for an independent Palestinian state coexisting peacefully with 
the State of Israel. The United Nations (UN), the United States, the 
European Union, and Russia--known as the Quartet on the Middle 
East[Footnote 10]--as well as Israel and the Palestinian Authority 
endorsed the strategy in April 2003. In January 2005, Mahmoud Abbas, a 
supporter of the peace strategy, was elected president of the 
Palestinian Authority. A year later, in January 2006, the Palestinian 
people elected a Hamas majority to the Palestinian Legislative Council. 
Hamas is designated as a terrorist organization by Israel, the United 
States, and the European Union. On January 30, 2006, the Quartet on the 
Middle East stated that its members would only provide support and 
assistance to the Hamas-led government if the government would agree to 
nonviolence, recognize the state of Israel, and respect previous 
Israeli-Palestinian peace agreements. As of September 2006, Hamas had 
not accepted these conditions. 

Since 1993, the United States has provided more than $2 billion to the 
West Bank and Gaza to support the Middle East peace process and 
encourage progress in reforming the Palestinian Authority.[Footnote 11] 
The 2005 appropriation of $274.4 million--the largest yearly amount of 
U.S. bilateral assistance for the West Bank and Gaza since the second 
intifada--was provided to, among other things, support the president of 
the Palestinian Authority, elected in January 2005, and to facilitate 
the Israeli disengagement from Gaza and four northern West Bank 
settlements. As of June 30, 2006, the West Bank and Gaza mission 
reported that it had obligated $222.9 million in Economic Support Fund 
assistance[Footnote 12] through various financial agreements active 
during fiscal year 2005 and had expended $60.8 million. For fiscal year 
2006, USAID reported that it had obligated just $1.1 million and 
expended only $139,000--reflecting the fact that U.S. assistance to the 
West Bank and Gaza has been frozen pending a comprehensive review. In 
April 2006, the Secretary of State announced a substantial reduction in 
assistance and redirected $300 million to humanitarian, democracy 
promotion, and civil society activities. In June 2006, concerned that 
Hamas' influence was growing, the Congress directed that none of the 
funds appropriated under the Economic Support Fund in 2006 or any prior 
appropriation for foreign operations, export financing, and related 
programs may be obligated for assistance to the West Bank and Gaza 
until the Secretary of State reports to the Committees on 
Appropriations how the funds will be spent and that appropriate 
measures are in place to ensure that no funds will support terrorist 
activities.[Footnote 13] On July 21, 2006, the Secretary of State 
submitted the report to the committees. The report included a revised 
strategy that provided details on an assistance package totaling $468 
million.[Footnote 14] 

Since establishing its mission in the West Bank and Gaza in September 
1993, USAID has directed assistance to the Palestinians toward five 
main development sectors: economic growth, water and infrastructure, 
democracy and governance, health, and higher education. It has 
supported these objectives through efforts such as, respectively, job 
creation programs, construction of reservoirs and roads, election 
support projects, projects to improve maternal and child health, and 
university scholarship programs. As a result of Hamas' election victory 
in January 2006, the terrorist organization's unwillingness to accept 
the conditions set by the Quartet, and continued attacks on Israel by 
Hamas' military wing, USAID reduced and redirected its overall 
assistance program and focused its assistance primarily on democracy 
support, health, education, and private sector development activities 
that would not provide political or economic gain to, or require 
contact with, the Hamas-led Palestinian Authority. 

U.S. policy to prevent assistance from supporting known terrorists in 
the West Bank and Gaza is articulated in a 2001 executive order and 
several appropriations laws: 

* Executive Order 13224, issued in September 2001, blocks property and 
prohibits transactions with persons who commit, threaten to commit, or 
support terrorism.[Footnote 15] 

* The Consolidated Appropriations Acts of 2003, 2004, and 2005 
[Footnote 16] require that before obligating assistance under the 
Economic Support Fund for the West Bank and Gaza, the Secretary of 
State must establish vetting procedures to ensure that U.S. assistance 
is not provided to or through any individual, entity, or institution 
associated with terrorist activity. The 2005 law also prohibits the 
obligation of assistance under the Economic Support Fund to recognize 
or honor individuals who commit, or have committed, acts of 
terrorism.[Footnote 17] In addition, the laws require that the USAID 
Administrator ensure that annual audits of all West Bank and Gaza 
contractors and grantees and significant subcontractors and subgrantees 
are conducted to, among other things, ensure compliance with the 
antiterrorism provisions contained in the acts.[Footnote 18] 

To implement Executive Order 13224 and the antiterrorism provisions in 
the various laws, USAID has issued several Acquisition and Assistance 
Policy Directives since 2002 that require an antiterrorism 
certification in all grants and cooperative agreements and an 
antiterrorism clause in all USAID awards. 

* All prime awardees and subawardees of grants and cooperative 
agreements are required to certify that they do not provide material 
support or resources to individuals or entities engaged in terrorist 
activity or to those that support them.[Footnote 19] The certification 
delineates steps that awardees are supposed to take to help prevent 
assistance from being provided to terrorists, such as (1) reviewing 
U.S. and UN terrorist lists to ensure that awardees do not appear on 
them and (2) developing reasonable monitoring procedures to safeguard 
against the diversion of assistance to support terrorist activity. This 
certification also provides for unilateral termination of the award by 
USAID if the terms of the certification are violated. 

* The antiterrorism clause applies to all prime awardees and 
subwardees. It is intended to familiarize award recipients with the 
names contained in Executive Order 13224 and apprise them of their 
contractual responsibility to comply with executive orders and laws 
that prohibit transactions with, and provision of resources and support 
to, individuals and organizations associated with terrorism.[Footnote 
20] USAID also mandated the inclusion of an antiterrorism clause in 
awards to the UN. It states that the UN will make reasonable efforts to 
ensure that no USAID funds are used to provide support to individuals 
and organizations associated with terrorism.[Footnote 21] 

The West Bank and Gaza mission developed additional clauses to 
implement other legislated antiterrorism provisions that applied to its 
awards during 2005.[Footnote 22] 

* The "naming" clause, according to the mission's regional legal 
advisor, is required in all prime awards initiated after December 2004. 
The clause was introduced in response to allegations that USAID was 
providing funding to institutions that were honoring terrorists. After 
these allegations, a provision was included in the 2005 appropriations 
law prohibiting the use of assistance appropriated under the Economic 
Support Fund to recognize or honor individuals who commit, or have 
committed, acts of terrorism.[Footnote 23] 

* The "cash" clause, according to the mission's regional legal advisor, 
is required in all prime awards and prohibits the provision of direct 
cash assistance to the Palestinian Authority unless a presidential 
certification is filed. It was first introduced in the 1998 
appropriations law and has been included in annual appropriations law 
since then.[Footnote 24] The regional legal advisor told us that, 
although the mission originally required the cash clause as an 
anticorruption measure, the clause could now serve to help prevent the 
use of U.S. funds to support terrorism.[Footnote 25] 

Figure 2 presents the mission's antiterrorism measures that applied to 
USAID contracts, grants, and cooperative agreements during fiscal year 
2005. 

Figure 2: Antiterrorism Vetting, Certification, and Clause Requirements 
Applicable in Fiscal Year 2005, by Financial Agreement: 

[See PDF for Image] 

Source: GAO analysis of USAID and West Bank and Gaza mission guidance. 

[End of Figure] 

West Bank and Gaza Mission's Implementation of Antiterrorism Measures 
Had Limitations, but the Mission Is Taking Certain Corrective Actions: 

The mission's implementation of its measures for antiterrorism vetting, 
certification, and clauses in fiscal year 2005 had limitations that 
reduced its ability to help ensure that U.S. assistance does not 
support terrorist activities. However, the mission has taken steps, or 
is taking steps, to correct many of these limitations. 

Mission's Vetting Procedures Had Limitations, but It Has Taken 
Corrective Actions: 

The mission developed procedures for vetting awardees, but limitations 
in these procedures reduced the mission's ability to help ensure that 
U.S. funds do not support terrorists. However, the mission has 
implemented actions to strengthen its procedures. The mission did not 
collect certain biographical information, leading to less-than- 
comprehensive vetting results. In addition, the mission had not 
developed procedures to verify the information provided by prime 
awardees or to ensure that prime awardees verified information provided 
by subawardees. Further, until March 2006, a higher dollar threshold 
for vetting some contractors and subcontractors reduced the numbers 
vetted, and the mission eliminated a requirement for periodic revetting 
of awardees in early 2006. As a result of our review and consultations 
with congressional staff, the mission has made changes to strengthen 
its procedures, including collecting more complete biographical data, 
verifying the data provided by awardees, lowering the vetting threshold 
for contracts, and reinstituting periodic revetting. Finally, several 
limitations associated with the mission's vetting management database 
have hampered the mission's oversight of the vetting process, although 
the mission has begun taking steps to correct these issues. 

West Bank and Gaza Mission Developed Vetting Procedures: 

According to mission officials, the mission's vetting procedures were 
the culmination of a process beginning in 2001 and based on 
consultations with Congress. These procedures represent an interagency 
effort forged from consultations with USAID's Asia and Near East 
Bureau, USAID's antiterrorism task force, the Office of the General 
Counsel, the U.S. Embassy in Tel Aviv, U.S. implementing partners, and 
Palestinian nongovernmental organizations (NGOs). Since then, the 
vetting procedures have been refined to account for concerns raised by 
these and other parties. The mission's vetting procedures state that 
the process begins when a non-U.S. prime awardee submits identifying 
information about itself and its key individuals, or information about 
a subawardee and its key individuals, to the mission. This information 
is entered in the mission's unclassified vetting management 
database[Footnote 26] and is forwarded to U.S. officials in the U.S. 
Embassy in Tel Aviv who are responsible for the vetting. These 
officials consult available resources, such as counterterrorism 
databases, to determine whether the prime awardee, the subawardee, or 
any key individuals are linked to terrorism. Memorandums containing the 
vetting results are sent to the mission, which records the results in 
the vetting management database. 

If the prime awardee, the subawardee, or any of their key individuals 
are found to have links to terrorism, the mission has the opportunity 
to collect and forward additional information. If the additional data 
fail to alter the initial vetting assessment results showing links to 
terrorism, the mission may submit an appeal to officials at the U.S. 
Embassy-Tel Aviv and the U.S. Consulate General-Jerusalem. Once a final 
determination has been made, the cognizant technical officer notifies 
the mission's contracting officer[Footnote 27] and the awardee of the 
result and the mission's vetting management database is updated. The 
proposed award or subaward is denied if the final determination shows 
links to terrorist organizations or activity. 

Mission Did Not Gather Comprehensive Vetting Information or Have 
Procedures to Verify Information Collected from Awardees: 

Until recently, the mission's vetting of individuals associated with 
awardees was limited by the mission's decision not to collect certain 
identifying information for key individuals associated with prime 
awardees and subawardees. The mission changed this policy in June 2006. 
Similarly, the vetting process was limited because the mission did not 
have procedures to verify the information provided by prime and 
subawardees. However, the mission has indicated it will take steps to 
correct this problem. 

USAID documents show that in 2001, the mission intended to collect 
detailed identifying information about Palestinian prime awardees and 
subawardees, including key individuals' names,[Footnote 28] places and 
dates of birth, and identification numbers. However, according to USAID 
officials, a number of NGOs expressed concern about providing 
identifying information for key individuals because they feared that 
such efforts would be seen as intelligence gathering for the United 
States, Israel, or both. Consequently, the mission decided in 2002 to 
routinely collect only the four-part name. 

In 2002, embassy vetting officials informed USAID that (1) a person's 
name alone is not sufficient proof of their identity, given how easily 
names may be changed or aliases used; (2) alternative spellings of 
Arabic names in English add another layer of uncertainty; and (3) 
additional data elements such as date of birth would increase the 
reliability of the vetting process. Since USAID provided only the four- 
part name, the vetting officials required that all of their vetting 
results be qualified. Our analysis showed that providing only the four- 
part name led to incomplete vetting results most of the time. In a 
random probability sample of 104 of 520 vetting results memorandums 
received by the mission since October 2002, 94 percent of all 
memorandums characterized the vetting based on only the four-part name 
as less than comprehensive.[Footnote 29] The memorandums state that 
additional information, such as the individual's date and place of 
birth and Israeli identification number, was needed for a more complete 
assessment. In addition, we found that the mission had established no 
procedures to verify the accuracy of key individuals' names provided by 
awardees, such as requiring an Israeli identification card, passport, 
driver's license, or some other identification document. 

In February 2006, USAID officials told us that when vetting with an 
individual's four-part name indicated terrorist associations, the 
mission would collect and provide additional information in an attempt 
to verify the initial vetting results. In June 2006, as a result of 
consultations with congressional staff, the mission drafted an 
amendment to its policy and now requires the collection of key 
individuals' dates and places of birth and Israeli identification 
numbers.[Footnote 30] However, because the mission has not yet 
developed procedures to verify this information, it cannot be certain 
that the information in its database correctly identifies the key 
individuals to be vetted. In commenting on this report, USAID stated 
that the mission is following current policies and regulations, common 
throughout the U.S. government, which place the burden on the 
contractors and grantees to ensure the accuracy of information provided 
to the government. However, the mission, prompted by our findings, is 
planning to obtain an affirmative certification from awardees as to the 
accuracy of key individuals' names and other data provided. 

Other Procedural Limitations Have Hampered Vetting: 

Until March 2006, a higher dollar threshold limited the number of 
awards that were vetted, resulting in the vetting of fewer individuals 
and organizations. Also, in March 2006, the mission eliminated a 
requirement to periodically revet awardees, which may preclude the 
revetting of some awardees after an initial clearance. Based on our 
review and other factors, USAID has taken action to strengthen its 
vetting procedures. 

Vetting Dollar Threshold: 

In fiscal years 2001 through 2003, the mission required vetting for all 
non-U.S. contractors and subcontractors, as well as their key 
individuals, for awards valued at $25,000 or more.[Footnote 31] 
However, the mission's July 2003 action memorandum raised this 
threshold to $100,000. We found that as a result of this increase, non- 
U.S. organizations and individuals associated with 34 contracts 
totaling approximately $2.1 million were not vetted during the period 
August 2003 through February 2006. According to the mission's Regional 
Legal Advisor, mission officials raised the vetting threshold in 2003 
in part because they were concerned that vetting was limiting the 
mission's ability to meet urgent humanitarian needs in the West Bank 
and Gaza. In addition, the lower vetting threshold had not identified 
any non-U.S. contractor associated with terrorism. Nevertheless, 
responding to increased pressure to prevent U.S. assistance from 
reaching terrorists, the mission lowered the vetting threshold back to 
$25,000 in March 2006. 

Periodic Revetting: 

The mission's current policy regarding revetting of individuals and 
organizations does not provide for the possibility that terrorist 
associations may develop over the duration of an award. Prior to March 
2006, mission guidance required that awardees be automatically revetted 
every 3 years. However, because most prime awards and subawards do not 
last 3 years, the mission dropped the revetting requirement from its 
guidance in March 2006. These March 2006 vetting procedures required 
that individuals and organizations be vetted once--prior to award 
approval. The vetting results were considered valid for the award's 
duration. The procedures also introduced additional conditions that 
would cause awardees to be revetted. These conditions included changes 
in key individuals, if an extension of the award is proposed, or if 
information is provided to USAID that indicates that an organization or 
its key individuals have been or may currently be involved in terrorist 
activity. 

This procedure does not take into account the fact that intelligence 
regarding terrorist affiliations changes over time and that such 
information may not be provided to USAID. For example, according to 
mission officials, new intelligence information in 2005 showed possible 
links to terrorists, including Hamas, for six organizations that 
previously had been cleared. Five of these organizations had received 
U.S. assistance through multiple subawards and had been vetted and 
cleared by U.S. Embassy vetting officials several times. The new 
intelligence information was received after three of the subawards had 
been completed.[Footnote 32] One award was terminated based on the 
validation of the new information and the remaining two organizations 
were cleared through additional vetting. 

Although the resources needed for vetting increase with the frequency 
of vetting, intelligence officials stated that periodic revetting is 
needed to help ensure that individuals and organizations are not 
involved in terrorism. Periodic revetting would allow USAID to 
proactively seek new information about awardees that had not met any of 
the conditions contained in the mission's procedures that trigger 
revetting. In its comments, USAID stated that, as a result of our 
review, it has reinstated a periodic revetting requirement. 

Limitations in the Mission's Vetting Management Database Have Hindered 
Its Utility, but the Mission Is Taking Corrective Action: 

A number of limitations associated with the mission's vetting 
management database--unreliable data, a lack of adherence to security 
policies, insufficient technical documentation, and the mission's low 
prioritization of the database--have constrained the mission's 
management and oversight of the vetting process. Since our review, the 
mission has begun taking steps to resolve many of these 
limitations.[Footnote 33] 

Unreliable Data: 

Our review of the database revealed several issues that call into 
question the data's reliability. 

* At least one of the names in the four-part name was missing from the 
name fields in more than 2,595 of the database's nearly 8,800 records. 

* Inappropriate data appeared in more than 1,000 records. In these 
records, fields designed to display key individual titles with decision-
making and fiduciary responsibilities as defined by USAID (such as 
president, executive director, or treasurer) contained the names of 
Middle Eastern countries or titles such as "office boy" and 
"administrative assistant."[Footnote 34] 

* Data fields could be overwritten, and the system lacked an audit 
trail to record changes to critical data. Thus, important historical 
data, such as the date of a vetting request, could be removed 
inadvertently when records were updated. 

Security Issues: 

In January 2006, the USAID RIG conducted a review of the mission's 
vetting procedures and recommended that relevant application and 
security controls be implemented. When we followed up on the RIG's 
work, we found several remaining weaknesses in the security of the 
vetting management database. 

* Vetting reports, containing the names of key individuals identified 
as having links to terrorism and the organizations they served, were 
stored in an unlocked filing cabinet. As a result, the mission's 
foreign service nationals and other staff without a need to know had 
unrestricted access to this information.[Footnote 35] 

* USAID had not obtained required approvals for a Palestinian foreign 
service national to design and develop the mission's vetting management 
database.[Footnote 36] 

* Because the mission did not classify the database as a major 
application (that is, an application that was critical to USAID's 
operations), the mission did not consider the relevance of application 
and security controls in maintaining its database, including the 
requirements outlined in USAID Automated Directives System Section 
545.[Footnote 37] 

Insufficient Technical Documentation: 

Although the mission backs up the database daily to allow it to restore 
the database in the event of a system failure, we found that the 
mission had not developed accompanying technical documentation. This 
documentation would help ensure that data were consistently defined and 
that the database could be rebuilt in the event of a system 
failure.[Footnote 38] The minimum amount of documentation required is a 
data dictionary or the equivalent information associated with a 
database management system, including a description of the data 
elements and their relationship.[Footnote 39] 

Low Priority: 

No office within the mission was formally designated as the database 
owner, as required.[Footnote 40] As a result, the database was shifted 
among five different offices within the mission over a 5-year period, 
which may have contributed to staffs' lack of understanding of the 
database capabilities and operation. For example, the individual 
responsible for operating the system at the time of our review was 
unaware of a database instruction manual that described how to enter 
information and retrieve reports on the status of vetting submissions. 
In addition, the foreign service national employee who had managed the 
unclassified vetting management database since March 2005 lacked the 
security clearances needed to communicate directly with vetting 
officials about vetting results--adding inefficiencies to the vetting 
process. 

Corrective Actions: 

Since our review of the West Bank and Gaza mission's vetting management 
database, the mission has taken several steps to correct many of the 
limitations we identified. 

* In March 2006, the mission hired a U.S. direct-hire employee with a 
security clearance to manage the vetting process. 

* In April 2006, as a result of the Regional Inspector General's 
earlier review and our observations, USAID headquarters sent 
information technology specialists and the USAID counterterrorism 
coordinator to review the database and related vetting procedures. 
Based on that review, USAID plans to implement a more robust and secure 
database by November 2006.[Footnote 41] 

* The mission has moved the vetting database to the Office of Contracts 
Management, where the award and vetting processes can be better 
integrated. 

Mission Did Not Ensure that All Antiterrorism Certifications and 
Clauses Were Completed before Awards Were Approved: 

Although the mission generally ensured that prime awardees of grants 
and cooperative agreements certified that they have not assisted and do 
not now assist terrorists, it did not ensure that applicable contracts, 
grants, and cooperative agreements included the antiterrorism, naming, 
and cash clauses. In addition, the mission lacked a system for 
verifying, before award approval, that subawardees had signed the 
required certifications and that subawards contained the required 
clauses. Based on our review, the mission has implemented procedures to 
verify that certifications are signed and clauses are included in 
subawards. However, the mission's policies on how its antiterrorism 
requirements apply to awards other than contracts, grants, and 
cooperative agreements is unclear. 

Most Prime Awardees Signed Certifications, but the Mission Did Not 
Verify Subawardee Certifications: 

The West Bank and Gaza mission generally ensured that prime awardees of 
grants and cooperative agreements signed the required antiterrorism 
certification;[Footnote 42] the required certifications were signed for 
all of the 46 applicable prime awards that we reviewed. However, 
although it has required since April 2003 that all subgrantees also 
sign the certification, until recently the mission did not verify that 
prime awardees collected subgrantee certifications before they gave 
funds to the subgrantees. About one-fourth of the 177 certifications 
for applicable subgrants that we reviewed were signed after the 
subgrant start date, and 11 of the certifications were signed 6 months 
to more than a year after subgrant approval. According to mission 
officials, prime contractors and grantees are responsible, as part of 
their due diligence in receiving and administering awards, to develop 
and maintain award files, including all required or relevant preaward 
certifications and representations. They are also legally obligated to 
adhere to laws and regulations, emphasizing those in their subawards 
that ensure the proper use and accountability of U.S. funds. 
Consequently, the mission stated that it is primarily the 
responsibility of the prime awardees to ensure that required 
certifications are contained in subawards. However, in responding to 
our observation that it lacked a system to verify compliance, in March 
2006 the mission revised its policy to require that all prime awardees 
submit subgrantees' certifications to the mission before award 
approval. 

Some Prime Awards and Subawards Did Not Contain Required Clauses: 

Although the mission required for fiscal year 2005 that all prime 
awards contain the antiterrorism, naming, and cash clauses and all 
subawards contain the antiterrorism clause, some awards did not include 
all the applicable clauses. As a result, some prime awardees and 
subawardees may not have been aware of their responsibilities outlined 
within these clauses. Similarly, prime awardees may not have been aware 
that they were not to use U.S. funds to honor terrorists or provide 
U.S. cash assistance to the Palestinian Authority.[Footnote 43] 

Prime Awards: 

While the West Bank and Gaza mission required that all prime awards 
contain the antiterrorism, naming, and cash clauses, we found that many 
did not include all three clauses. As table 1 shows, most of the awards 
that we reviewed included the antiterrorism clause, including the UN 
version of this clause when applicable. However, half of the awards did 
not contain the naming clause and more than one in five did not contain 
the cash clause. 

Table 1: Percentages of USAID West Bank and Gaza Prime Awards that 
Contained Required Clauses: 

Clause: Antiterrorism; 
Percentage with clause: 96. 

Clause: Naming; 
percentage with clause: 50. 

Clause: Cash; 
Percentage with clause: 78. 

Source: GAO analysis of USAID data. 

Notes: We reviewed 99 awards that were active during 2005. See 
enclosure I for more information on our sampling methodology. 

The 96 percent includes the UN-specific antiterrorism clause. 

[End of table] 

Subawards: 

The mission did not verify that subawards contained the antiterrorism 
clause or require them to contain the naming and cash clauses. The 
mission stated that existing regulations and policies do not require 
the mission to verify the inclusion of certain clauses prior to making 
a subaward. Instead it is primarily the responsibility of the prime 
awardee to ensure that required clauses are contained in the subawards. 
However, as a result of our review, the mission now requires prime 
awardees to provide the mission with copies of the pages of the 
subawards containing the required clauses. 

* Antiterrorism clause. Although the mission has required since 2002 
that prime awardees insert the antiterrorism clause in all subawards, 
the mission did not maintain lists of all current subawardees, 
including the type, amount, and duration of the subawards, and did not 
routinely check for the antiterrorism clause. As a result, until 
revising its policy in March 2006, the mission had no way to determine 
the extent to which prime awardees were complying with the requirement 
to include the clause in subawards. Mission officials stated that it 
was the prime awardees' responsibility to ensure that all subawards 
included the required clause and that the mission used annual audits 
conducted by the RIG to verify whether the prime awardees had included 
the antiterrorism clause in all subawards. However, in commenting on a 
draft of this report, RIG officials stated that the mission should have 
its own verification system and not use RIG audits for this purpose. 
Thirty-nine (about 10 percent) of the 393 applicable subawards, which 
were associated with the prime awards active in 2005 that we reviewed, 
did not contain the antiterrorism clause at the subaward start date. In 
six of these subawards, the clause was added 2 or more years after the 
start date.[Footnote 44] With the issuance of Mission Order 21 in March 
2006, the mission now requires prime awardees, including the UN, to 
provide copies of the subaward sections containing the antiterrorism 
clauses. 

* Naming clause. The naming clause was not required in subawards for 
fiscal year 2005. With the issuance of Mission Order 21, the mission 
now requires that all subawards include the clause. 

* Cash clause. The mission did not require the cash clause in subawards 
active in 2005. However, the Regional Legal Advisor stated that West 
Bank and Gaza subawardees are nonetheless legally obligated to adhere 
to the federal requirement on which the clause is based. In commenting 
on a draft of this report, the mission stated that it has modified all 
ongoing prime and subawards to include the clause and that the clause 
will be required in all future subawards. 

Mission Antiterrorism Polices for Some Agreements Unclear: 

Although the mission has developed policies and procedures for applying 
antiterrorism requirements to contracts, grants, and cooperative 
agreements, it has not clearly delineated how its antiterrorism 
provisions apply to certain other agreements used to transfer 
assistance. These include consulting agreements, letters of 
understanding, memorandums of understanding, and purchase orders (see 
enc. V for definitions of these terms). We found that prime awards 
active in 2005 contained subawards that were used to transfer more than 
$5 million in assistance through these types of agreements. 

The regional legal advisor told us that without clear policies and 
procedures for these other agreements, the mission applied its 
antiterrorism provisions inconsistently. For example, the regional 
legal advisor stated that the mission's antiterrorism provisions 
applied to consulting agreements as they would to subcontracts. 
However, he also stated that the consulting agreements did not need to 
include the mandatory antiterrorism clause, which the mission requires 
in all subcontracts. Further, according to a mission official, USAID's 
Office of Transition Initiatives required that recipients of in-kind 
assistance[Footnote 45] through memorandums of understanding were 
supposed to sign the antiterrorism certification. However, the mission 
did not enforce this requirement until USAID's Office of the General 
Counsel instructed the mission to require all in-kind assistance 
recipients to sign the antiterrorism certification. In our examination 
of subaward information provided by prime awardees, we found purchase 
orders with the antiterrorism clause and others without. Similarly, we 
found memorandums of understanding with the antiterrorism certification 
and others without. 

Although the mission amended Mission Order 21 to address issues 
involving in-kind assistance, the order does not clearly address how 
the mission's antiterrorism provisions apply to the other agreements. 
In commenting on a draft of this report, mission officials stated that 
there is no need to specify other types of agreements by name in its 
mission order because the mission order's language is broad enough to 
cover all awards that would provide assistance whether cash or in-kind. 
We found that the language in the mission order broadly defined 
"awards" as any contract, grant, or cooperative agreement and any cash 
or in-kind assistance provided by USAID or an implementing partner in 
any form. However, the language in the order describing the types of 
agreements that require the antiterrorism certification and clause is 
very specific. For example, the order states that the certification 
requirement applies to all grants and cooperative agreements, and the 
clause requirement applies to all contracts, grants, and cooperative 
agreements. There is no mention of other types of agreements. 
Consequently, this inconsistency between the level of specificity in 
the award definitions and the descriptions of certain antiterrorism 
provisions leaves their application to other types of agreements open 
to interpretation. 

USAID Complied with the Mandate to Audit Awardees, but the Audits Did 
Not Help Ensure Compliance with Antiterrorism Provisions before Awards 
Were Implemented: 

To address the 2003 mandate and subsequent related mandates to complete 
financial audits of prime awardees and significant subawardees in 
fiscal years 2003 through 2005, USAID's RIG in Cairo, Egypt, contracted 
with Palestinian audit firms and the Palestinian offices of 
international audit firms.[Footnote 46] Overall, the audits focused on 
compliance with financial and accounting requirements--examining the 
fund accountability statement, identifying whether award costs were 
allowable and reasonable, and evaluating the awardee's internal 
controls. The audits also reviewed compliance with various agreement 
provisions, laws, and regulations, including the applicable 
requirements for vetting, certification, and clauses.[Footnote 47] 

As of June 2006, the RIG issued 62 reports based on the contract 
auditors' reviews for fiscal years 2003 through 2005. However, even 
though the mandate was addressed, the audits' antiterrorism reviews 
were of limited utility to the mission for ensuring compliance with 
antiterrorism provisions prior to award implementation. This is 
primarily because the audits were not initiated until after the award 
had been implemented. In addition, the RIG's guidance to its contract 
auditors did not always reflect the mission's antiterrorism policies 
and procedures and, in 2004 and 2005, did not address certain 
methodological guidance issued in October 2003. 

The RIG's Antiterrorism Compliance Reviews Were Not Initiated Until 
after Awards Were Implemented: 

The timing of the RIG's financial audits and certain other issues 
limited their usefulness to the mission for determining whether 
awardees had complied with the antiterrorism requirements. Because the 
primary focus of the RIG's audits was financial, the audits were not 
initiated until after the award had been implemented or, in some cases, 
completed. This means that any shortcomings or omissions in conducting 
the required vetting or ensuring that the antiterrorism certifications 
and clauses were in the awards or subawards, as required, would not 
have been found by the auditors until after the award or subaward had 
been made. As a result, the mission would not have learned of any 
instances of noncompliance identified by the RIG's auditors until after 
the award start date or, in some cases, until after the award's 
conclusion. 

In addition, as directed by the mandate, the RIG's audits focused on 
contractors and grantees (and significant subawardees) implementing 
U.S. assistance programs in the West Bank and Gaza. However, some prime 
awardees in fiscal years 2002 through 2005 administered several awards. 
As a result, once an award to a particular contractor, grantee, or 
significant subawardee had been audited, other awards to the same 
awardee would not necessarily have been examined, and compliance with 
antiterrorism provisions for those awards or significant subawards 
would not have been reviewed. 

Moreover, about one-third of the RIG's audit reports issued in fiscal 
years 2004 through 2006 did not clearly state which antiterrorist 
provisions were examined, if any, or did not report the audit results. 
Of the 62 reports, 14 reports (23 percent) did not state which mission 
requirements for vetting, certification, and clauses were applicable, 
if any, or whether compliance with them was reviewed. An additional 
seven reports (11 percent) stated that compliance with the mission's 
antiterrorism provisions was reviewed but did not provide any statement 
of the results. 

In commenting on a draft of this report, the mission stated that it 
used annual audits managed by the RIG to verify whether the prime 
awardees were in compliance with antiterrorism certification and clause 
requirements. It also stated that the audits served to strengthen and 
improve compliance with antiterrorism requirements. However, the 
Inspector General's Office stated in its response to a draft of this 
report that since the mission is responsible for ensuring compliance 
with antiterrorism provisions, the mission should develop a system 
other than relying solely on financial audits, which are conducted 
after awards are made to ensure that funds provided to awardees are 
being spent as intended. 

Auditors' Guidance Did Not Always Reflect Mission Policy and Was Not 
Clear on Audit Methodology for Subawards: 

In some instances, the written guidance provided to the RIG's contract 
auditors did not reflect the mission's policies and procedures for 
vetting, certifications, and clauses. 

* Vetting. Although the mission implemented its vetting policies and 
procedures in October 2002, the written guidance to auditors in 
September and October 2003 did not explicitly require that they confirm 
that vetting was done. However, the statements of work provided to 
auditors in 2004 and 2005 included specific language directing auditors 
to determine compliance with vetting procedures. 

* Certifications. The October 2003 written guidance regarding 
antiterrorism certifications differed from the mission's policy at the 
time. The mission required signed certifications for all awards and 
subawards, but the RIG guidance did not direct the auditors to verify 
that certifications were signed for subgrants under grants.[Footnote 
48] 

* Clauses. The RIG's written guidance directed the auditors to check 
for a less detailed version of the antiterrorism clause than mission 
guidance called for. The clause provided to the auditors, unlike the 
mission's version, did not state that (1) it was required in subawards, 
(2) awardees must promptly notify USAID of significant changes in key 
individuals, or (3) USAID reserves the right to approve or reject 
certain subawardees. 

In addition, the RIG's October 2003 supplementary guidance to its 
auditors prohibited selecting a random sample of subawards to review 
for compliance with the antiterrorism certifications and clauses. 
However, the statements of work for fiscal years 2004 and 2005 did not 
specify whether auditors should select a sample of subawards or examine 
all subawards. Two contract audit firms were hired after the 2003 
guidance was issued. We found that these firms had not received the 
guidance; consequently, unless the auditors were otherwise aware of the 
October 2003 guidance, some auditors may not have reviewed all 
subawards. 

Conclusion: 

The January 2006 election victory of Hamas in the Palestinian 
Legislative Council has led to increased concern that U.S. assistance 
to the West Bank and Gaza not support terrorists, as required by U.S. 
antiterrorism provisions. Although the USAID West Bank and Gaza mission 
developed policies and procedures for antiterrorism vetting, 
certifications, and clauses, its implementation of the provisions 
limited the mission's ability to ensure that U.S. assistance was not 
provided to terrorists or was used to support terrorism. Since our 
review, the mission has taken steps to correct many of these 
limitations, but others remain to be addressed. 

* Although the mission has begun to collect more complete identifying 
information for vetting key individuals, its lack of a procedure to 
verify this information means that it cannot be certain that the 
information is accurate. 

* Unresolved problems with the mission's vetting management database 
continue to affect its reliability, maintenance, and security, and the 
mission's recent elimination of a requirement that awardees be 
periodically revetted makes it less likely the mission will detect an 
awardees' terrorist associations that develop after initial vetting. 

* Because the mission still does not require that prime awardees 
include the cash clause in all subawards, some subawardees may not be 
aware of their contractual responsibility not to support the 
Palestinian Authority. 

* The mission's lack of formal policies and procedures for applying its 
antiterrorism provisions to financial agreements other than contracts, 
grants, and cooperative agreements may have resulted in some U.S. 
assistance going to the West Bank and Gaza without applying the 
antiterrorism provisions. 

Despite the difficulty of the task, the mission should do more to 
ensure that U.S. assistance is not provided to terrorists or those who 
support terrorism. 

To comply with the 2003 mandate to conduct financial audits of mission 
awardees, USAID's RIG contracted for audits and included the 
requirement to review compliance with antiterrorism provisions. 
However, financial audits are typically initiated after an award has 
been implemented or, in some cases, completed. As a result, the audits 
were of limited utility to the West Bank and Gaza mission for helping 
ensure compliance with the vetting, certification, and clause 
requirements, which, according to mission guidance, should be met 
before the award is made. In addition, the guidance for the RIG's 
contract auditors did not always reflect the mission's policies and 
procedures for vetting, certifications, and clauses at the time of the 
award; and the RIG's October 2003 methodological guidance for examining 
subawards was not incorporated into its written guidance for 2004 and 
2005. To enhance the mission's ability to promptly identify and address 
any lack of compliance with U.S. antiterrorism provisions, the mission 
needs to develop a system to review and report on compliance with its 
antiterrorism requirements before the awards are made and to ensure 
that the guidance provided for such reviews reflects the mission's 
policies and procedures at the time and adequately documents 
methodological approaches. 

Recommendations for Executive Action: 

To help ensure that U.S. assistance to West Bank and Gaza does not 
support terrorist activity, we recommend that the Director of U.S. 
Foreign Assistance and USAID Administrator direct the mission to take 
the following four actions: 

* consider (1) verifying the identifying data it collects for vetting, 
such as date of birth, by requiring Israeli identification cards or 
some other form of identification and (2) rescinding its decision to 
eliminate periodic revetting of awardees; 

* ensure that the mission's vetting management database promotes data 
reliability, satisfies technical documentation requirements, and meets 
all applicable security requirements; 

* ensure that the cash clause is included in all subawards before they 
are initiated; and: 

* develop policies and procedures that address how each antiterrorism 
provision applies to consulting agreements, letters of understanding, 
memorandums of understanding, and purchase orders. 

We also recommend that the Director of U.S. Foreign Assistance and 
USAID Administrator and the West Bank and Gaza mission, in cooperation 
with USAID's Office of the Regional Inspector General-Cairo, develop a 
review and reporting system other than USAID's financial audits to help 
ensure that the requirements for vetting, certifications, and clauses 
for each award and applicable subawards are met before the financial 
agreements are implemented. This system should also ensure that the 
reviews (1) reflect applicable West Bank and Gaza mission policies and 
procedures for vetting, certification, and clauses at the time of the 
awards; and (2) have a clear and consistent audit methodology for 
examining subawards. 

Agency Comments and Our Evaluation: 

USAID and USAID's Office of Inspector General provided written comments 
on a draft of this report. See enclosures II and III, respectively. 
State did not provide written comments. In addition, USAID, the USAID 
Regional Inspector General-Cairo, and State provided us with technical 
comments and updates, which we have incorporated throughout this 
report, as appropriate. In its written comments, USAID also suggested 
several points of clarification, which we have also incorporated. 

Overall, USAID noted that our fieldwork and draft report made a 
positive contribution to improving and strengthening the mission's 
antiterrorism procedures. As we note throughout the report, the mission 
acted on or began acting on many of our findings while the engagement 
was ongoing. USAID accepted our recommendations to modify its vetting 
procedures, improve its vetting management database, and ensure that 
the cash clause is included in all subawards. It noted the mission has 
begun or completed action to address these issues. 

However, USAID disagreed with our recommendation that it should develop 
policies and procedures for applying antiterrorism provisions to other 
assistance agreements, such as memorandums of understanding and 
purchase orders. It noted that these "unusual instruments" either do 
not provide assistance or are already covered by the mission's current 
guidance. We note that since our review the mission has amended Mission 
Order 21 to apply antiterrorism provisions to in-kind assistance. We 
also note that, while the order is very specific regarding contracts, 
grants, and cooperative agreements (and now in-kind assistance), it 
does not specifically address other types of agreements. We believe the 
mission still needs to clarify how antiterrorism provisions apply to 
all types of agreements the mission uses. 

Finally, the USAID Inspector General said his office would be pleased 
to cooperate with the mission to develop a system to help ensure that 
the antiterrorism provisions are met before financial agreements are 
implemented. The Inspector General did not specifically address our 
recommendation that it ensure that its audit guidance reflects 
applicable mission policies and that its methodology for examining 
subawards is clear and consistent. USAID agreed about the necessity of 
an improved system for ensuring compliance with antiterrorist 
provisions before prime awards and subawards are implemented. However, 
it noted that this responsibility rests with the mission and the prime 
awardees, and should not be the subject of "preaward audits." USAID 
also noted that its contractors and grantees are long-standing 
implementing partners who are cognizant of their obligations to adhere 
to federal and USAID policies and guidance. Moreover, as of March 2006, 
the mission began systematically verifying that subawardees signed the 
required certifications and that subawards had the mandatory clauses. 
We purposely did not specify how the mission should ensure that its 
antiterrorism provisions are in place before awards are implemented. We 
recommended that USAID and the West Bank and Gaza mission cooperate 
with the USAID Regional Inspector General-Cairo to develop such a 
system because the mission had relied on its audits in the past. 

Copies of this report are being sent to the Secretary of State, the 
Director of Foreign Assistance and USAID Administrator, the USAID 
Inspector General, relevant congressional committees, and other 
interested parties. We will also make copies available to others upon 
request. In addition, the report will be made available at no charge on 
GAO's Web site at [Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me on (202) 512-3149 or at GootnickD@gao.gov. Contact points 
for our Office of Congressional Relations and Office of Public Affairs 
may be found on the last page of this report. Major contributors to 
this report are listed in enclosure IV. 

Signed by: 

David Gootnick, Director: 
International Affairs and Trade: 

Enclosures: 

Enclosure I: 

Scope and Methodology: 

To determine the extent to which the United States Agency for 
International Development's (USAID) West Bank and Gaza mission (the 
mission) complied with Executive Order 13224 and the various 
antiterrorist restrictions in the Consolidated Appropriations Acts of 
2003, 2004, and 2005, we examined the mission's implementation of 
several USAID Acquisition and Assistance Policy Directives issued since 
2002. Because we were mandated to examine USAID's use of fiscal year 
2005 funding for the West Bank and Gaza, we focused our review on the 
mission's contracts, grants, and cooperative agreements (and related 
subawards) that were active during fiscal year 2005 and had received 
fiscal year 2005 funds through March 2006. In February 2006, we 
traveled to Tel Aviv, Israel, and discussed the mission's 
implementation of the antiterrorism requirements with the USAID Mission 
Director, his senior staff, project officers, contract technical 
officers, and other USAID mission officials responsible for managing 
assistance projects and overseeing contracts, grants, and cooperative 
agreements. We reviewed the mission's antiterrorism guidance and 
examined in detail (1) the mission's vetting documentation and vetting 
management database to determine if the mission had documented that it 
had vetted awardees and subawardees, as required; and (2) the various 
financial agreements' records to determine if antiterrorism 
certifications had been signed and the required clauses were in the 
awards and subawards, as required. 

* To understand the mission's vetting process, we discussed with 
various mission officials, including the Regional Legal Advisor, how 
the process worked. We examined the documentation provided to the 
mission in response to its vetting for organizations and individuals. 
To gain a better understanding of the vetting responses, we randomly 
selected a probability sample[Footnote 49] of 520 vetting results 
memorandums accumulated by the mission beginning in 2002 through March 
2006. We also discussed the operation of the mission's vetting 
management database with the foreign service national charged with 
maintaining it at the time of our review. He provided us access to the 
vetting database and its related documentation. In addition, during our 
review, we obtained related information from the Defense Intelligence 
Agency, the Central Intelligence Agency, and the Departments of State 
and Treasury. 

* To determine whether the mission's prime awards contained the 
antiterrorism certification and clauses, as required, we reviewed the 
mission's files for all 99 prime awards that were active during 2005. 
Of the 99 prime awards, 20 were cooperative agreements and 3 were 
grants. To determine whether the subawards contained the required 
antiterrorism certifications and clauses, we reviewed all 99 prime 
awards to determine which had subawards. We found 67 prime awards with 
a total of 931 subawards. We then examined the subawards as follows: 

- For antiterrorism certifications, the requirement applied to any 
subgrants issued under a contract, grant, or cooperative agreement 
after April 1, 2003. We found that 14 prime awards (6 contracts, 2 
grants, and 6 cooperative agreements) had subgrants that required an 
antiterrorism certification. For 13 of these prime awards, we examined 
all the applicable subgrants, for a total of 104. However, 4 of these 
were not dated, and thus, could not be assessed. The remaining prime 
award had 190 applicable subgrants. We selected a random sample of 73 
of these. Therefore, we examined a total of 177 (about 60 percent) out 
of 294 applicable subgrants under 14 prime awards. 

- For the antiterrorism clauses, the requirement applied to any 
subawards under prime awards that were issued on or after March 20, 
2002. In some cases, prime awards entered into prior to March 20, 2002, 
were modified to include the clause, and those related subawards also 
required the clause as of the date of the modification. Of a total of 
488 subawards that fit this category, 24 were missing documentation and 
therefore could not be analyzed. Seventy-one of these subawards were 
affiliated with UN agencies and therefore did not require the clause to 
be included in subawards. Therefore, we found that a total of 393 
subawards were required to contain the clause and we examined all of 
them. 

For our analysis of the mission's financial agreements, we developed a 
data collection instrument to help ensure that our reviews of the 
mission's files were consistent. To help us track and analyze the 
information collected, we developed a database to record the data for 
each award. For each prime award, we recorded information regarding 
vetting, certification, and clauses, as well as more than 30 other data 
elements, including the award number, project name, start and end 
dates, and objectives and goals. For each subaward, we recorded key 
information about the certifications and antiterrorism clause, as well 
as the subaward type, signature date, dollar value, subawardee name, 
U.S. or non-U.S. designation, and key individuals' names. During our 
review of the mission's financial agreement files, we discussed any 
conflicting data or, in some cases, missing data, with the cognizant 
project officer or contract technical officer. In this way, we resolved 
any apparent disparities and satisfied ourselves that the data we 
compiled were sufficiently reliable for the purposes of this report. 

In reviewing the RIG's financial audits that addressed, in part, the 
West Bank and Gaza mission's compliance with its antiterrorism 
provisions, we examined 62 audit reports on assistance to the West Bank 
and Gaza issued in fiscal years 2004 through 2006. These reports 
covered awards active from 2002 through 2005. In addition, we traveled 
to Cairo, Egypt, and met with RIG officials to discuss its audit 
coverage of USAID West Bank and Gaza awards. When we were not clear 
about the audit reports' scope and methodology, we followed up with the 
cognizant Regional Inspector General (RIG) official. In this way, we 
resolved any apparent disparities and satisfied ourselves that the data 
we compiled were sufficiently reliable for the purposes of this report. 

Enclosure II: USAID Comments: 

USAID: From The American People: 

September 22, 2006: 

Mr. David Gootnick: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Gootnick: 

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response on the draft GAO report entitled: Foreign 
Assistance: Recent Improvements Made, but USAID Should Do More to Help 
Ensure Aid Is Not Provided for Terrorist Activities in West Bank and 
Gaza (GAO-06-1062R). USAID thanks the GAO and its staff for their hard 
work and professionalism. 

The GAO team's field work and draft report contributed positively to 
the continuous improvement and strengthening of our anti-terrorism 
vetting procedures. In fact, implementation of some GAO recommendations 
began while the audit was still on-going. We are particularly pleased 
to note that this comprehensive review identified no funding going to 
terrorist individuals or organizations, a clear indication that the 
systems the USAID Mission has in place are an effective bulwark 
ensuring that U.S. assistance does not support terrorism. We have 
enclosed background information highlighting points we feel warrant 
further clarification, and information on the recommendations GAO has 
made as a result of its audit. 

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely, 

Signed by: 

Lisa D. Fiely: 
Chief Financial Officer: 

Enclosure: a/s: 

Response to GAO Report 06-1062R Foreign Assistance: Recent Improvements 
Made, but USAID Should Do More to Help Ensure Aid Is Not Provided for 
terrorist Activities in West Bank and Gaza (August 2006): 

Background: 

We believe two important points do not get adequate attention in the 
draft report: 

1. USAID West Bank and Gaza was at the vanguard of U.S. Government 
agencies establishing anti-terrorism vetting procedures for assistance. 
Current procedures are the culmination of a long evolutionary process 
beginning in July 2001 that included broad consultations with Congress 
and other Executive Branch agencies, within USAID, and now with the 
GAO. A diagram of the Mission's vetting process has been provided to 
the GAO. 

2. It is important to view the anti-terrorism procedures in light of 
the overall program and its strategic importance to the success of the 
USG policy in support of a two state solution to the 
Israeli/Palestinian issue. While those procedures have importance in 
and of themselves, they must be developed, implemented, and assessed 
not only in terms of applicable regulations and laws, but also in terms 
of how they relate to the achievement of foreign policy objectives. 

Recommendations for Executive Action: 

The first four recommendations are directed specifically to the West 
Bank and Gaza Mission. The fifth recommendation includes the 
cooperation of the Regional Inspector General (RIG)/Cairo. 

The report's first recommendation is to consider (1) verifying the 
identifying data collected for vetting; and (2) reinstating periodic 
revetting of awardees. USAID accepts this recommendation and plans to 
require implementing partners to provide an affirmative certification 
as to the accuracy of the information, as they are best situated to be 
able to verify the information. 

The second recommendation is to ensure the vetting management database 
meets data reliability, technical documentation and security 
requirements. USAID accepts the recommendation. The Agency has devoted 
considerable resources toward developing a more sophisticated database 
that will be hosted in USAID/Washington and will be fully compliant. 

The third recommendation is to ensure that the cash clause is included 
in all subawards. USAID accepts the recommendation and since March 2006 
has required prime awardees to provide a copy of the cash clause that 
appears in each sub-award. We have requested that the relevant report 
language be changed to reflect this. 

The fourth recommendation is to develop policies and procedures on how 
anti-terrorism provisions apply to unusual instruments, such as 
memoranda of understanding, project agreements, and purchase orders. We 
disagree with the premise of the recommendation, as the instruments 
referred to are either instruments which do not provide assistance or 
forms of contracts which are already covered by the Mission's current 
procedures. 

The fifth recommendation is to work with USAID's Inspector General in 
Cairo (RIG) to institute "pre-award audits" to ensure that all 
applicable clauses are included in all awards and subawards. While 
USAID agrees with the GAO that there needs to be an improved system for 
ensuring compliance with pre-award anti-terrorism requirements 
(vetting, certification, and contract/grant clauses), USAID also agrees 
with the RIG that this responsibility rests with the USAID mission and 
the prime awardees, and should not be the subject of "pre-award 
audits." This view conforms to standard federal government regulations 
that put responsibility on prime awardees for ensuring that all 
subawards are in compliance with federal government requirements. 
Further, the vast majority of the Mission's contractors and grantees 
are long-standing USAID partners who are cognizant of their obligation 
to adhere to federal and USAID policies and guidance, are aware of 
their and their sub-awardees' legal responsibilities not to provide 
assistance and support to entities affiliated with terrorism; and have 
thorough, long established internal procedures to ensure compliance. 
Morever, following the issuance of Mission order No. 21 in March 2006, 
the Mission began systematically verifying that recipients of sub- 
awardees signed the required certifications and that subawards 
contained the mandatory clauses, thus meeting the intent of the GAO 
recommendation. 

The second recommendation is to ensure the vetting management database 
meets data reliability, technical documentation and security 
requirements. USAID accepts the recommendation. The Agency has devoted 
considerable resources toward developing a more sophisticated database 
that will be hosted in USAID/Washington and will be fully compliant.

The third recommendation is to ensure that the cash clause is included 
in all subawards. USAID accepts the recommendation and since March 2006 
has required prime awardees to provide a copy of the cash clause that 
appears in each sub-award. We have requested that the relevant report 
language be changed to reflect this.

The fourth recommendation is to develop policies and procedures on how 
anti-terrorism provisions apply to unusual instruments, such as 
memoranda of understanding, project agreements, and purchase orders. We 
disagree with the premise of the recommendation, as the instruments 
referred to are either instruments which do not provide assistance or 
forms of contracts which are already covered by the Mission's current 
procedures.

The fifth recommendation is to work with USAID's Inspector General in 
Cairo (RIG) to institute "pre-award audits" to ensure that all 
applicable clauses are included in all awards and subawards. While 
USAID agrees with the GAO that there needs to be an improved system for 
ensuring compliance with pre-award anti-terrorism requirements 
(vetting, certification, and contract/grant clauses), USAID also agrees 
with the RIG that this responsibility rests with the USAID mission and 
the prime awardees, and should not be the subject of "pre-award 
audits." This view conforms to standard federal government regulations 
that put responsibility on prime awardees for ensuring that all 
subawards are in compliance with federal government requirements. 
Further, the vast majority of the Mission's contractors and grantees 
are long-standing USAID partners who are cognizant of their obligation 
to adhere to federal and USAID policies and guidance, are aware of 
their and their sub-awardees' legal responsibilities not to provide 
assistance and support to entities affiliated with terrorism; and have 
thorough, long established internal procedures to ensure compliance. 
Morever, following the issuance of Mission order No. 21 in March 2006, 
the Mission began systematically verifying that recipients of sub-
awardees signed the required certifications and that subawards 
contained the mandatory clauses, thus meeting the intent of the GAO 
recommendation.

Statements Requiring Clarification: 

The draft report includes several statements that warrant 
clarification, including the following: 

1. "Although the mission has begun to collect more complete identifying 
information for vetting key individuals, its lack of a procedure to 
verify this information means that it cannot be certain that the 
information is accurate." This statement implies that the information 
the Mission collects may be inaccurate. There is no indication or 
evidence to suggest that information provided is inaccurate, only that 
further steps could be taken to provide additional comfort as to its 
accuracy. This is an important clarification given that the draft 
report and past reviews have established no indication of false or 
inaccurate data or that the Mission's implementing partners have not 
verified information collected. 

2. "Unresolved problems with the mission's vetting management database 
continue to affect its reliability, maintenance, and security, and the 
mission's recent elimination of a requirement that awardees be 
periodically revetted makes it less likely the mission will detect an 
awardees' terrorist associations that develop after initial vetting." 
As the draft report mentions, the Mission is replacing its database as 
a way to strengthen its anti-terrorism procedures. The new database, 
expected to be operational in November 2006, will address all findings 
and recommendations from the RIG's review of the current database and 
will implement relevant application and security controls such as those 
in Automated Directives System 545, Information Systems Security. 

As for the periodic revetting, the Mission believes that the additional 
revetting "triggers" outlined in Mission Order #21 (which added more 
stringent rules) better anticipate the possibility that terrorist 
associations may develop over time than periodic revetting. A 
description of this process in the draft report would provide the 
reader with some context for the Mission's decision. 

USAID once again thanks the GAO for its diligence and rigor in 
preparation of the draft report and for the opportunity to comment. 

Appendix 1: 

[See PDF for Image] 

The following are GAO's comments on USAID's letter dated September 22, 
2006. 

1. The diagram provided by USAID has been included with the agency's 
comments. 

2. Information pertaining to the overall purpose of USAID's assistance 
is included in the background section of the report. 

3. USAID disagrees with our recommendation that it should develop 
antiterrorism policies and procedures for "unusual" instruments such as 
memorandums of understanding and purchase orders. USAID stated that it 
believes that its current policies and procedures are broad enough to 
cover all types of assistance agreements. We believe that clarifying 
the definitions of awards and subawards contained in mission order 21 
and how antiterrorism provisions apply to other types of awards could 
help ensure that antiterrorism policies are correctly and consistently 
applied. We added additional evidence and information to the report to 
further demonstrate the need to clarify the policies and procedures. 

4. We agree that the responsibility for ensuring that the antiterrorism 
policies and procedures are correctly and consistently applied rests 
with the mission and prime awardees. We purposely did not specify how 
the mission should ensure that its antiterrorism provisions are in 
place before awards are implemented. We recommended that USAID and the 
West Bank and Gaza mission cooperate with the USAID Regional Inspector 
General-Cairo to develop such a system because the mission had relied 
on its audits in the past. We also noted in the report that USAID now 
requires that awardees provide copies of required certification and 
award sections containing the antiterrorism-related clauses prior to 
award approval. 

5. In technical comments USAID provided on a draft of this report, 
USAID stated that it is planning to obtain an additional certification 
from awardees as to the accuracy of key individuals' names and other 
data provided. We added information to the report to reflect this new 
procedure. 

6. We describe the corrective actions that USAID is taking to improve 
its vetting management database where applicable in the report. 

7. Additional information has been added to the report that describes 
the additional conditions that would require that revetting occur. 
USAID also stated in its technical comments that it plans on 
reinstating a periodic revetting requirement. This change in policy has 
been added to the report. 

Enclosure III: USAID Inspector General Comments: 

USAID: From The American People: 

Office of Inspector General: 

September 5, 2006: 

David Gootnick: 
Director, International Affairs and Trade: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Gootnick: 

Thank you for the opportunity to comment on the draft report titled 
Foreign Assistance. Recent Improvements Made, but USAID Should Do More 
to Help Ensure Aid Is Not Provided for Terrorist Activities in West 
Bank and Gaza (GAO-06-1062R). 

Our Regional Office of Inspector General in Cairo will continue to work 
closely with the USAID Mission in providing assistance and to ensure 
that non-Federal auditors perform their work in accordance with 
Government Auditing Standards in addressing the audit needs of USAID/ 
West Bank and Gaza. We would be pleased to cooperate with USAID/West 
Bank and Gaza as it implements GAO's recommendation on page 30 of the 
draft report to "develop a review and reporting system other than 
USAID's financial audits to help ensure that the requirements for 
vetting, certifications, and clauses for each award and applicable 
subawards are met before financial agreements are implemented." 

Since the Mission is responsible for ensuring that these requirements 
are met, we agree that it should develop a system other than relying 
solely on financial audits-which by their nature are conducted after 
awards are made so as to ensure that funds provided to awardees are 
being spent as intended. These audits will also continue to include 
steps to review whether the Mission carried out required antiterrorism 
provisions. 

Therefore, we believe the captions stating that these audits were of 
"Limited Utility to the Mission" should be revised since the audits are 
doing precisely what they were designed to do. We suggest that the 
captions on pages 25 and 26 be revised as follows. The caption on page 
25 should read "USAID Complied with the Mandate to Audit Awardees, but 
Other Procedures Are Necessary to Ensure Compliance with Antiterrorism 
Provisions." The caption on page 26 should read: "The Antiterrorism 
Compliance Review Needs to Be Accomplished Before Financial Audits Are 
Performed." Accordingly, the text following these captions should be 
revised to remove statements that these audits were not useful and to 
clearly state that systems and procedures, other than financial audits, 
need to be put in place before awards are made. 

Our Regional Office of Inspector General in Cairo will cooperate and 
consult with USAID/West Bank and Gaza as they implement these systems 
and procedures. In doing so, our office needs to ensure that we will 
not be involved with clearing or approving such systems in order to 
maintain our independence as USAID's Office of Inspector General. 

Sincerely, 

Signed by: 

Joseph Farinella: 
Assistant Inspector General for Audit: 

U.S. Agency for International Development: 
1300 Pennsylvania Avenue, NW: 
Washington, DC 20523: 
www.usaid.gov: 

Enclosure IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick (202) 512-3149: 

Staff Acknowledgments: 

Albert H. Huntington, III; David M. Bruno; Jeffrey L. Hartnett; Arthur 
James; and Robert E. Lee made key contributions to this report. In 
addition, Claude T. Adrien, Martin de Alteriis, Etana Finkler, Reid L. 
Lowe, Grace P. Lui, and Jose M. Pena provided technical assistance. 

Enclosure V: 

Glossary: 

USAID has used the following types of financial agreements to transfer 
assistance in the West Bank and Gaza.[Footnote 50] 

Consulting agreements are used to retain, in an advisory role, an 
individual considered an expert in his or her field. The contractual 
form may be an employment agreement or subcontract, depending on the 
organization's practices. 

Contracts are principally used to acquire property or services for the 
use of the federal government. 

Cooperative agreements are used to transfer money, property, or 
services to provide federally authorized support or stimulation in 
which USAID is expected to be substantially involved. 

Grants are principally used to transfer money, property, or services to 
provide federally authorized support or stimulation in which USAID is 
not expected to be substantially involved. 

Letters of agreement are used to record a common understanding where 
USAID's standard provisions would not otherwise be required to be 
incorporated to apply specific conditions on the interaction. 

Memorandums of understanding (MOUs) set forth an agreement between 
parties. An MOU may be used to cover a range of topics, including 
results to be achieved, activities to be implemented, and the 
respective roles and responsibilities of each party. An MOU is not used 
for obligating funds. However, an MOU may be used to confirm an 
agreement with a host government on a program that USAID will fund 
directly through an obligating agreement signed with other parties. 

Purchase orders set forth USAID's contractual agreement for small 
purchases of goods and services. 

(320379): 

These definitions are from the USAID Automated Directives System 
Glossary and West Bank and Gaza mission staff. 

FOOTNOTES 

[1] Executive Order 13224, 66 Fed. Reg. 49070 (Sept. 23, 2001) pursuant 
to the authorities of the International Emergency Economic Powers Act 
(50 U.S.C. 1701 et seq.); the National Emergencies Act (50 U.S.C. 1601 
et seq.); sec. 5 of the United Nations Participation Act of 1945, as 
amended (22 U.S.C. 287c) (UNPA); and sec. 301 of title 3, United States 
Code. 

[2] Consolidated Appropriations Resolution of 2003, Pub. L. No. 108-7, 
 568(b), 117 Stat. 11, 207 (2003); Consolidated Appropriations Act of 
2004, Pub. L. No. 108-199,  566(b), 118 Stat. 3, 195 (2004); and 
Consolidated Appropriations Act of 2005, Pub. L. No. 108-447, 559(b), 
118 Stat. 2809, 3019 (2004). 

[3] For the purposes of this report, we define active awards as awards 
for which obligations or expenditures were made in fiscal year 2005. 
According to West Bank and Gaza mission documents, vetting involves 
checking the names of individuals and organizations that implement 
USAID projects against databases and other information sources to 
determine if they are involved with terrorism. Throughout this report, 
we use the term "prime awardees" to refer to organizations that receive 
USAID contracts, grants, or cooperative agreements to implement U.S. 
assistance projects. "Subawardees" refer to organizations that receive 
subcontracts or subgrants from prime awardees for work on U.S. 
assistance projects. In addition to using contracts, grants, and 
cooperative agreements, USAID provides assistance through consulting 
agreements, letters of understanding, memorandums of understanding, and 
purchase orders. See enclosure I for definitions of these terms. 

[4] Emergency Supplemental Appropriations for Defense, the Global War 
on Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13,  2103, 119 
Stat. 231, 266 (2005). Other issues related to assistance delivered by 
USAID's West Bank and Gaza mission--including information on 
obligations, expenditures, and the impact of the assistance--will be 
covered in a future report. 

[5] Since 2003, U.S. appropriations acts ( 568(b), 117 Stat. at 207;  
566(b), 118 Stat. at 195;  559(b) 118 Stat. at 3019) have required 
that federal or nonfederal audits of all USAID contractors, grantees, 
and significant subcontractors and subgrantees in the West Bank and 
Gaza be conducted at least annually to ensure, among other things, 
compliance with U.S. antiterrorism provisions related to assistance for 
West Bank and Gaza. The USAID RIG determined the significance of 
subawardees based on the total value of the awards provided to the 
subawardee. 

[6] The mission defines key individuals as those who have financial and 
management decision-making authority over the operations of the 
organization. USAID specifies that such individuals include the program 
manager or chief of party for the USAID-financed program; the principal 
officer and deputy principal officer of the organization (for example, 
executive director, deputy director, president, or vice-president); the 
principal officers of the organization's governing body (for example, 
chairman, vice-chairman, treasurer, and secretary of the board of 
directors or board of trustees); and any other person with significant 
responsibilities for administration of USAID-financed activities or 
resources. 

[7] Up to $1 million was provided to the USAID Office of the Inspector 
General in each fiscal year to conduct the audits. 

[8] The West Bank has a land area of 2,263 square miles and a 
population of about 2.4 million. Gaza has a land area of 139 square 
miles and a population of about 1.4 million. 

[9] The accords called for the withdrawal of Israeli forces from Gaza 
and parts of the West Bank and affirmed the Palestinian right to self- 
government within those areas through the creation of the Palestinian 
Interim Self-government Authority. Palestinian rule would last for a 5- 
year interim period during which a permanent agreement would be 
negotiated (beginning not later than the third year of the interim 
period). 

[10] The quartet is involved in mediating the peace process between the 
State of Israel and the Palestinian Authority. 

[11] These funds include $121 million in direct budget support for the 
Palestinian Authority and $1.3 billion to the UN Relief and Works 
Agency. 

[12] The Economic Support Fund promotes the economic and political 
foreign policy interests of the United States by providing assistance 
to allies and countries in transition to democracy, supporting Middle 
East peace negotiations, and financing economic stabilization programs. 
Recent appropriations acts prohibit the provision of Economic Support 
Fund assistance in the West Bank and Gaza to support or recognize 
individuals or organizations involved in terrorism. 

[13] See Emergency Supplemental Appropriations Act for Defense, the 
Global War on Terror, and Hurricane Recovery, 2006 Pub. L. No. 109-234, 
 1304, 120 Stat. 418, 435 (2006). The act was signed into law on June 
15, 2006. 

[14] The assistance includes $50 million for Israel's use in easing the 
movement and access of Palestinian people and goods, while improving 
its security. 

[15] 

[16] Earlier executive orders concerning antiterrorism and the Middle 
East peace process include Executive Order 12947, 60 Fed. Reg. 5079 
(Jan. 23, 1995), and Executive Order 13099, 63 Fed. Reg. 45167 (Aug. 
20, 1998). Orders issued subsequent to Executive Order 13224 that amend 
it include Executive Order 13268, 67 Fed. Reg. 44751 (July 2, 2002), 
which, among other actions, added two individuals to the list of 
designated terrorists contained in Executive Order 13224, and Executive 
Order 13284, 68 Fed. Reg. 4075 (Jan. 23, 2003), which stipulates that 
the Department of Homeland Security be included in consultations about 
whether to designate an individual or organization as a terrorist and 
what actions should be taken to carry out Executive Order 13224. 

[17]  568(b), 117 Stat. at 207;  566(b), 118 Stat. at 195;  559(b) 
118 Stat. at 3019. Similar language was included in the Foreign 
Operations, Export Financing, and Related Programs Appropriations Act, 
2006, Pub. L. 109-102,  559(b), 119 Stat. 2172, 2221 (2005). Section 
1304 of the Emergency Supplemental Appropriations Act for Defense, the 
Global War on Terror, and Hurricane Recovery, 2006, requires the 
Secretary of State to report to the Committees on Appropriations that 
appropriate procedures and safeguards exist to ensure that U.S. 
assistance is not provided to or through any individual, private or 
government entity, or educational institution that the Secretary knows 
or has reason to believe advocates, plans, sponsors, engages in, or has 
engaged in, terrorist activity. 

[18] Consolidated Appropriations Act of 2005, Pub. L. No. 109-102,  
559(c), 118 Stat. 2809, 3019 (2004). 

[19]  568(c), 117 Stat. at 207;  566(c), 118 Stat. at 195;  559(d) 
118 Stat. at 3019. 

[20] This requirement can be found in USAID Acquisition and Assistance 
Policy Directives 02-19 (December 2002), 04-07 (March 2004), 04-14 
(September 2004) and action memorandums. 

[21] The antiterrorism clause requirements are specified in Acquisition 
and Assistance Policy Directive 02-04 (March 2002) and in action 
memorandums. 

[22] The UN version of the antiterrorism clause is specified in 
Acquisition and Assistance Policy Directive 03-04 (May 2003). 

[23] On October 30, 2002, and July 3, 2003, the USAID West Bank and 
Gaza mission Regional Legal Advisor issued two action memorandums that 
were distributed to the mission summarizing the antiterrorism 
requirements in place at the time. 

[24]  559(c), 118 Stat. at 3019. 

[25] Foreign Operations, Export Financing, and Related Programs 
Appropriations Act of 1998, Pub. L. No. 105-118,  566, 111 Stat. 2386, 
2428 (1997); Omnibus Consolidated and Emergency Supplemental 
Appropriations Act of 1999, Pub. L. No. 105-277,  566, 112 Stat. 2681, 
2681-194 (1998); Consolidated Appropriations Act of 2000, app. B, Pub. 
L. No. 106-113,  563, 113 Stat. 1501, 1501A-105, (1999); Foreign 
Operations, Export Financing, and Related Programs Appropriations Act 
of 2001, app. A, Pub. L. No. 106-429,  562, 114 Stat. 1900, 1900A-46 
(2000); Foreign Operations, Export Financing, and Related Programs 
Appropriations Act of 2002, Pub. L. No. 107-115,  555, 115 Stat. 2118, 
2160 (2002); Consolidated Appropriations Resolution of 2003, Pub. L. 
No. 108-7,  552, 117 Stat. 11, 2000 (2003); Consolidated 
Appropriations Act of 2004, Pub. L. No. 108-199,  552, 118 Stat. 3, 
188 (2004); Consolidated Appropriations Act of 2005, Pub. L. No. 108- 
447,  550, 118 Stat. 2809, 3014; and Foreign Operations, Export 
Financing, and Related Programs Appropriations Act of 2006, Pub. L. No. 
109-102,  550, 119 Stat. 2172, 2217 (2005). 

[26] We analyzed the application of the cash clause in all USAID awards 
active in 2005 because of Hamas' election victory and subsequent 
control of the Palestinian Authority. 

[27] The mission database is intended to store information collected on 
organizations and individuals that require vetting, track the dates 
when vetting occurred, and record the vetting results. 

[28] A cognizant technical officer performs functions that are 
designated by the contracting or agreement officer or is specifically 
designated by policy or regulation as part of contract or assistance 
administration. A contracting officer represents the U.S. government 
through the exercise of his or her delegated authority to enter into, 
administer, and terminate contracts and make related determinations and 
findings. 

[29] The four-part name comprises the individual's given name, the 
father's given name, the grandfather's given name, and the individual's 
surname. 

[30] Our sample survey finding that vetting in 94 percent of the 520 
memorandums was less than comprehensive has a 95-percent confidence 
interval of 88 to 98 percent. 

[31] The amendment states that mission order 21 encouraged the 
submission of additional data but did not require it. As of September 
2006, the mission was awaiting clearance on privacy act and paper 
reduction approvals associated with the amendment of mission order 21. 

[32] All recipients of grants and cooperative agreements have been 
subject to vetting requirements, regardless of the dollar value of the 
award, since vetting began in 2001. 

[33] One of these three organizations was found to have links to 
terrorist organizations upon application for another award. 

[34] The vetting management database and the information it contains 
are considered unclassified. 

[35] The database contains 1670 records associated with organizations 
and 8,772 records associated with key individuals. 

[36] According to the mission's October 2002 action memorandum, 
information in the database should be available only to those with an 
official need for access. Much of the information contained in the 
database is also contained in these paper files. 

[37] According to State Department guidance (12 Foreign Affairs Manual 
633.1), under certain conditions, foreign nationals are not to develop, 
modify, or perform maintenance on software used on State computer 
systems without specific diplomatic security authorization. The 
information management officers responsible for State's computer 
systems, both in the United States and abroad, must obtain 
authorization before such work is begun. USAID's information systems 
security personnel stated USAID works to comply with FAM 633.1 and the 
mission should have consulted with information security personnel prior 
to developing the database. 

[38] According to USAID information systems security personnel, the 
criteria in effect when the database was developed did not require the 
system to be classified as a major application. 

[39] USAID Automated Directive 502.5.6a states that USAID database 
applications should comply with Code of Federal Regulations (CFR) Title 
36,1234.20(b). According to the CFR, agencies must maintain adequate 
and up-to-date technical documentation for each electronic information 
system that produces, uses, or stores data files. 

[40] In database management systems, a data dictionary is a file that 
defines the basic organization of a database, including a list of all 
files in the database, the number of records in each file, and the 
names and types of each field. 

[41] Automated Directive System, sec. 545. 

[42] A prototype of the system was undergoing refinement and testing in 
September 2006. 

[43] The certification requirement is in AAPD 02-19 and subsequent 
revisions and mission action memorandums. NGOs initially raised 
concerns about the language contained in the certification and their 
potential liability for subawardee compliance. Some refused to sign it 
altogether. Moreover, the Palestinian Legislative Council's Economics 
Committee in May 2004 published a report that discouraged Palestinian 
NGOs from signing the certification because it considered the 
requirement an affront to its sovereignty and did not want any of its 
assistance to be conditioned. USAID made revisions to the certification 
after lawyers representing NGOs persuaded the agency to change the 
language. These changes resulted in more Palestinian NGOs signing the 
certifications. 

[44] According to the mission, subsequent to our review, the mission 
has verified that all current and active awards contain all three 
clauses. 

[45] USAID did not provide documentation for 24 of the subawards; 
consequently, inclusion of the antiterrorism clause could not be 
verified. 

[46] The mission defines in-kind assistance as assistance provided in 
the form of goods and services, such as medical supplies and equipment. 

[47] To conduct the audits, up to $1 million was provided in each 
fiscal year to the USAID Office of the Inspector General. 

[48] In 2003, the RIG issued supplementary guidance to its contract 
auditors addressing antiterrorism provisions and also specified 
requirements in its contract auditor's statements of work from 2003 
through 2005. 

[49] The October 2003 guidance to contract auditors stated that the 
certification requirement applies to the prime recipients of grants, as 
well as to the recipients of grants under contracts, but it does not 
apply to subgrantees under grantees. 

[50] With a probability sample, each member of the study group (in this 
case, the mission's vetting results memorandums) has a known chance of 
being selected. Our sample was only one of a large number of samples 
that we might have drawn. Since each sample could have provided 
different estimates, we express our confidence in the precision of our 
particular sample's results as a 95 percent confidence interval. For 
this estimate of 94 percent, the confidence interval extends from 88 to 
98 percent. This is the interval that would contain the actual 
population value for 95 percent of the samples we could have drawn. 

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