Foreign Assistance:

U.S. Democracy Assistance for Cuba Needs Better Management and Oversight

GAO-07-147: Published: Nov 15, 2006. Publicly Released: Nov 15, 2006.

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U.S. law authorizes aid for nonviolent democratic change in Cuba. From 1996-2005, the Department of State (State) and the U.S. Agency for International Development (USAID) awarded grants totaling $74 million to support such change. A presidential commission recently recommended increasing funding for these efforts. This report examines (1) agency roles in implementing this aid and selection of grantees; (2) types of aid, recipients, and methods of delivery reported in 2005; (3) oversight of grantees; and (4) data about the impact of this aid. To address these objectives, we analyzed the activities and internal controls, and USAID's oversight and management of, 10 grantees with about 76 percent (in dollars) of total active awards for Cuba democracy aid. Our review focused on USAID because State's first awards were not made until mid-2005.

The Department of State State and USAID implement U.S. democracy assistance for Cuba through an interagency process. However, communication between these agencies was sometimes ineffective, most critically about grantees' on-island activities. About 95 percent ($62 million) of USAID's total awards were made in response to unsolicited proposals; however, after 2004, both USAID and State used formal competition to select grantees. Dissidents in Havana said that U.S. assistance provided moral support and enhanced their ability to work for democracy. In 2005, the 10 grantees we reviewed delivered humanitarian and other aid, training, and information to human rights and political activists, independent librarians and journalists, and political prisoners and their families. Assistance shipped to Cuba included food, medicine, clothing, office equipment and supplies, shortwave radios, books, and newsletters. Grantees also conducted international advocacy for human and workers' rights in Cuba and planned for a future democratic transition. Given the Cuban government's repressive policies and opposition to U.S. democracy assistance, grantees employed a range of discreet delivery methods that varied in terms of security, flexibility, and cost. The U.S. Interests Section in Havana, Cuba, a State post, has played an important role in distributing the aid provided by some grantees. Internal controls--both over the awarding of Cuba program grants and oversight of grantees--do not provide adequate assurance that the grant funds are being used properly and that grantees are in compliance with applicable laws and regulations. Preaward reviews of grantees were not always completed before awards, and USAID did not follow up adequately after awards to correct weaknesses in grantee policies, procedures, and accounting systems identified by these reviews. In addition, standardized grant agreements did not provide sufficient details to support program accountability or the correction of the weaknesses identified by preaward reviews. The Cuba program office also did not adequately manage at-risk grantees and lacked formal review or oversight procedures for monitoring grantee activities. We performed limited testing for 10 grantees and identified questionable expenditures and significant internal control weaknesses with 3 grantees that USAID had not detected. The Cuban government's active opposition to U.S. democracy assistance presents a challenging operating environment for State and USAID. Although USAID and its grantees have some evaluation and anecdotal information about program results, they have focused on measuring and reporting program activities, such as the volume of food, medicine, or books sent to Cuba. USAID recently took several steps to collect better information about program results, such as increasing staff expertise and meeting more regularly with grantees.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: With respect to cost sharing, USAID took several steps to provide grantees specific guidance and to ensure monitoring of grantee expenditures. USAID provided agencywide guidance on permitted cost sharing in January 2007. In addition, USAID reviews grantees' cost-share contributions. For example, GAO observed two monitoring site visits in June 2008 during which USAID staff reviewed types of cost sharing permitted and emphasized the importance of keeping adequate records to support cost-share claims. As of June 2008, USAID had completed its review of all of its grantees with cost-share obligations at the time, and based on our review of documentation USAID provided to us in August 2011, USAID has continued to complete similar cost-sharing reviews through a financial services contractor since 2008. With respect to humanitarian assistance, USAID reviews and approves lists of any humanitarian assistance to be provided under its grants before such assistance is sent to Cuba. According to USAID, in early 2007, the Cuba Program required existing grantees to provide detailed lists of proposed humanitarian items to be reviewed by USAID officials. In addition, language was added to all new grant agreements requiring grantees to submit such lists in cases in which humanitarian assistance is planned under an agreement. Of the eight current grantees as of August 2011, three planned to provide humanitarian assistance under their grants and all three provided USAID with lists of all commodities, including any humanitarian assistance, to be sent under their grants. USAID contracting officials then reviewed each of these lists to ensure compliance with guidance on commodities eligible to be purchased under USAID grants, which is also referenced in grant agreements. This guidance notes, for example, that no USAID funds shall be used to purchase luxury goods such as alcoholic beverages, jewelry, furs, and expensive textiles, among other items. Although this guidance does not specifically focus on humanitarian assistance, the requirement that lists of humanitarian assistance be provided and reviewed against this guidance is a quality check that helps to ensure that only permitted types of humanitarian assistance are sent to Cuba under these USAID grant agreements. In addition, grantee monitoring visits also serve to ensure that only permitted types of humanitarian assistance are provided.

    Recommendation: The USAID Administrator should direct the appropriate bureaus and offices to improve management of grants related to Cuba by providing grantees specific guidance on permitted types of humanitarian assistance and cost-sharing, and ensuring that USAID staff monitors grantee expenditures for these items.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Implemented

    Comments: USAID took several actions that address GAO's recommendation to require grantees to establish and maintain adequate internal control frameworks and develop approved grant implementation plans. For example, to address the recommendation, USAID enhanced its focus on the adequacy of grantees' internal controls during preaward audits, preaward followup audits, and grantee monitoring visits. A financial services firm was contracted by USAID in April 2008 ? and renewed in 2010 - to supplement the agency's ability to conduct such internal control audits. In addition, the Cuba Program provided various types of guidance to grantees on relevant program policies and procedures through quarterly grantee coordination meetings, new grantee orientation briefings, and emails to grantees. Based on documentation provided to us in August 2011, a recent orientation briefing for grantees included discussion of pre-award and post-award audit issues, results reporting, licensing requirements, and commodity eligibility. Further, between January and May 2007, the Program completed an initial round of reviews of the adequacy of grantee implementation plans and followup on recommended changes from this initial round was completed in April 2008. In 2008, USAID added a new provision to grant agreements to require grantees to submit written implementation plans within 30 days of an award start date. We reviewed six grantee files in August 2011 and found that all of the grantees submitted an implementation plan within the allotted time frame, although the format and level of detail included in these plans varied. Of note, based on our review, two grant agreements with a value over $500,000 did not include the "Non-Federal Audits" clause regarding the requirements of the Single Audit Act Amendments of 1996, which are intended to promote sound financial management for federal awards administered by nonprofit organizations. Although USAID stated that these agreements included reference to applicable sections of the Code of Federal Regulations, a prior Office of Inspector General audit found that including references to the Code of Federal Regulations did not sufficiently inform grantees of requirements under the Single Audit Act. While we determined that the agency has taken sufficient steps to meet the overall intent of our recommendation, the program might benefit from further improvements to internal controls in this area in particular.

    Recommendation: The USAID Administrator should direct the appropriate bureaus and offices to improve management of grants related to Cuba by requiring that grantees establish and maintain adequate internal control frameworks, including developing approved implementation plans for the grants.

    Agency Affected: United States Agency for International Development

  3. Status: Closed - Implemented

    Comments: USAID took several actions that address GAO's recommendation to improve follow-up on issues identified in preaward reviews. Specifically, the USAID Cuba Program has worked since January 2007 to track the resolution of preaward review issues through internal management committees and, as of July 2011, the Cuba Program Office and Office of Acquisition and Assistance continue to hold regular meetings to discuss issues related to preaward review followup, as appropriate. In March 2007, USAID's Office of Acquisition and Assistance issued an agencywide bulletin stressing the importance of timely followup and resolution of issues identified in preaward reviews. Also in 2007, USAID developed revised grant agreement language linking the resolution of issues and findings of preaward reviews and follow-up reviews to the obligation of incremental grantee funding. Based on our review of documentation provided in August 2011, we found that follow up was generally conducted in a timely and thorough manner for any issues identified during preaward reviews conducted since December 2006. For example, USAID provided evidence of additional followup reviews as well as meetings and ongoing communication between USAID officials, external auditors, and grantees to ensure the resolution of issues identified, as well as denial of a grantee's request for advanced funding in a case in which its preaward audit findings were not yet resolved.

    Recommendation: The USAID Administrator should direct the appropriate bureaus and offices to improve management of grants related to Cuba by improving the timeliness and scope of follow-up procedures to assist in tracking and resolving issues identified during the preaward reviews.

    Agency Affected: United States Agency for International Development

  4. Status: Closed - Implemented

    Comments: USAID took several actions that address GAO's recommendation, including working to provide sufficient lead time for preaward reviews and taking steps to ensure preaward survey results are documented in writing. Specifically, in January 2007, USAID noted that it had formalized the practice of providing preaward survey results in writing to the agreement officer prior to grant award. In March 2007, USAID's Office of Acquisition and Assistance issued an agencywide bulletin that reinforced existing guidance by stressing the importance of sufficient lead time for completion of preaward reviews. USAID also noted that beginning in December 2006, it had established an internal committee that was meeting quarterly and served in part to help ensure that any preaward audit reviews were conducted in a timely manner by ensuring adequate lead time to conduct preaward reviews prior to the award date. In July 2011, USAID officials noted that officials from the Cuba Program Office and Office of Acquisition and Assistance continue to hold regular internal meetings to discuss issues including preaward reviews for Cuba Program grantees. In addition, based on our review of documentation provided by USAID in August 2011, of the three grantees that received a pre-award review since December 2006, all were completed prior to the awarding of funds.

    Recommendation: The USAID Administrator should direct the appropriate bureaus and offices to improve management of grants related to Cuba by improving the timeliness of preaward reviews to ensure they are completed prior to the awarding of funds.

    Agency Affected: United States Agency for International Development

  5. Status: Closed - Implemented

    Comments: USAID took several actions that address GAO's recommendation. For example, in 2007 State and USAID noted that State?s Bureau of Western Hemisphere Affairs' Office of the Coordinator for Cuban Affairs and Office of the Coordinator for Transition in Cuba, as well as its Bureau of Democracy, Human Rights and Labor (DRL), were participating in regular meetings with USAID's Bureau of Latin America and the Caribbean Cuba Program Office to coordinate overall program direction and review individual grants submitted to either agency. We also reviewed copies of agendas from recent meetings, as well as invitee lists for these meetings that included names of participants from State, USAID, and USINT. State also provided USAID with access to a classified computer link to State and USINT, which enhanced communication on sensitive issues and the ability to coordinate and monitor Cuba grantees' provision of democracy assistance through USINT. As of July 2011, USAID continues to utilize this classified computer link to communicate with State and USINT and participate in various interagency working group meetings on a regular basis with State and USINT officials responsible for implementing and monitoring U.S. democracy assistance efforts for Cuba.

    Recommendation: The Secretary of State and the USAID Administrator should work jointly to improve communication among State bureaus in Washington, D.C.; the U.S. Interests Section, Havana, Cuba (USINT); and USAID offices responsible for implementing U.S. democracy assistance, recognizing that USINT has limited resources but a crucial role in providing and monitoring democracy assistance.

    Agency Affected: United States Agency for International Development

  6. Status: Closed - Implemented

    Comments: State has taken actions that address GAO?s recommendation. For example, in 2007 State and USAID noted that State's Bureau of Western Hemisphere Affairs' Office of the Coordinator for Cuban Affairs and Office of the Coordinator for Transition in Cuba, as well as its Bureau of Democracy, Human Rights and Labor (DRL), were participating in regular meetings with USAID's Bureau of Latin America and the Caribbean Cuba Program Office to coordinate overall program direction and review individual grants submitted to either agency. We reviewed copies of agendas from recent meetings, as well as invitee lists for these meetings that included names of participants from State, USAID, and the U.S. Interests Section (USINT) in Havana, Cuba. State also provided USAID with access to a classified computer link to State and USINT, which enhanced communication on sensitive issues and the ability to coordinate and monitor Cuba grantees' provision of democracy assistance through USINT. As of July 2011, USAID continues to utilize this classified computer link to communicate with State and USINT and participate in various interagency working group meetings on a regular basis with State and USINT officials responsible for implementing and monitoring U.S. democracy assistance efforts for Cuba.

    Recommendation: The Secretary of State and the USAID Administrator should work jointly to improve communication among State bureaus in Washington, D.C.; the U.S. Interests Section, Havana, Cuba (USINT); and USAID offices responsible for implementing U.S. democracy assistance, recognizing that USINT has limited resources but a crucial role in providing and monitoring democracy assistance.

    Agency Affected: Department of State

  7. Status: Closed - Implemented

    Comments: USAID took several actions that address GAO's recommendation to develop and implement a more formal, structured approach for site visits and other grant monitoring activities. For example, as of November 2008, the USAID Cuba Program had developed and used a formal, structured approach for its quarterly site visits to grantees. Program staff used a form to describe grantee activities, evaluate grantee accomplishments, and assess compliance with grant internal control and other requirements. The form included basic program and financial information about the grant and grantee and instructions to review, as well as work plan activities, tax records, and detailed support for salaries, rent, and purchases of goods and services, among other things. The form allowed USAID staff to record needed followup actions or support for grantees. As of November 2008, USAID had also taken initial steps to use information gathered at site visits to identify at-risk grantees and prioritize monitoring, such as emailing a grantee with poor record keeping regarding the need to maintain adequate documentation to demonstrate funds were being spent for authorized purposes. USAID also emphasized this point during grantee quarterly coordination meetings and site visits. In addition, in August 2011, GAO reviewed documentation including examples of recent site visit reports and a list of site visits conducted for USAID Cuba Program grantees from 2007 through July 2011, which showed that grantees received site visits on a regular basis, generally quarterly. USAID noted that it continues to use a standard form for monitoring site visits, as well as a condensed version of the form for addressing specific issues and concerns between quarterly visits.

    Recommendation: The USAID Administrator should direct the appropriate bureaus and offices to improve management of grants related to Cuba by developing and implementing a formal and structured approach to conducting site visits and other grant monitoring activities, and utilizing these activities to provide grantees with guidance and monitoring.

    Agency Affected: United States Agency for International Development

 

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