Foreign Aid:

Improving the Impact and Control of Economic Support Funds

NSIAD-88-182: Published: Jun 29, 1988. Publicly Released: Jun 29, 1988.

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In response to a congressional request, GAO reviewed the Agency for International Development's (AID) efforts to: (1) promote economic policy reform through the Economic Support Fund (ESF) program; and (2) control ESF cash transfer funds.

GAO found that AID: (1) relied on cash transfers to encourage economic policy reforms and to address balance-of-payments problems; (2) did not establish sufficient criteria to guide its policy reform efforts; (3) has had mixed success in encouraging policy reforms; (4) encountered problems in its efforts to implement separate accounting for cash transfers, since recipients continued commingling program funds with foreign exchange accounts; (5) failed to require separate accounting for certain ESF grants and projects because it did not consider them cash transfers; and (6) did not verify that recipients complied with its requirement to keep records on separate account disbursement or ensure that they used the funds for authorized purposes.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: AID intends to include the details GAO recommended in program assistance authorization documents wherever required.

    Recommendation: To improve the prospects for successful policy reform efforts and facilitate measuring progress, the Administrator, AID, should require that each internal AID program document justifying cash transfer programs seeking policy reform to: (1) clearly state the specific economic policy reforms that cash transfer is intended to encourage; (2) specify the anticipated time frames or milestones for achieving these reforms; and (3) state the anticipated impacts of the reforms on economic development. Wherever country circumstances render it practical, AID should also include such details in grant agreements.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Implemented

    Comments: AID believes it is currently complying with the intent of the applicable legislation and that existing ESF control systems provide assurance that funds in commingled accounts are used for appropriate transactions. AID plans no further action.

    Recommendation: To ensure that AID implementation of separate accounting is consistent with congressional intent, the Administrator, AID, should describe how AID will maintain accountability in cash transfer programs when it cannot avoid commingling cash transfers with other foreign exchange.

    Agency Affected: United States Agency for International Development

  3. Status: Closed - Implemented

    Comments: AID has sent out guidance for setting up separate accounts for all cash transfers, including sector grants, implementing legislative requirements.

    Recommendation: To ensure that AID implementation of separate accounting is consistent with congressional intent, the Administrator, AID, should require recipients to maintain all ESF cash grants, not just those termed cash transfers, in separate accounts.

    Agency Affected: United States Agency for International Development

  4. Status: Closed - Implemented

    Comments: AID agreed to audit all separate accounts, but it has not done so yet. AID intends to provide for periodic auditing of all ESF separate accounts and is negotiating for access to bank records and audit rights to be included in cash transfer grant agreements.

    Recommendation: To ensure that AID implementation of separate accounting is consistent with congressional intent, the Administrator, AID, should ensure that all separate cash transfer accounts be independently audited once every 3 years.

    Agency Affected: United States Agency for International Development

 

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