Foreign Aid:

Potential for Diversion of Economic Support Funds to Unauthorized Use

NSIAD-87-70: Published: Jan 14, 1987. Publicly Released: Jan 14, 1987.

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In response to a congressional request, GAO reviewed Economic Support Fund (ESF) programs to determine whether: (1) recipient countries had diverted any of the funds to military use; and (2) the Agency for International Development's (AID) program controls leave open the possibility for diversion to unauthorized purposes.

GAO found that: (1) AID reported only one possible diversion of funds to military use, which involved jeeps that Somalia imported in 1984 under a commodity import program and which a private concern later resold to the military; and (2) measures such as control provisions in grant agreements, payment verification procedures, program audits and evaluations, as well as AID reviews of recipient government reports and monitoring procedures, prevented unauthorized diversion of funds. GAO also found that there is a potential for possible funds diversion because: (1) accounting for cash transfers that the recipient government has commingled with other revenues is nearly impossible; (2) providing cash assistance frees up other resources for military expenses; (3) AID relies on recordkeeping by recipient country institutions that have administrative weaknesses, and must monitor projects and commodities at remote locations and large numbers of sites; and (4) AID has problems implementing the controls it places over the economic assistance programs and in ensuring the recipients' compliance with the controls.

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