Aid to Kenya:

Accountability for Economic and Military Assistance Can Be Improved

NSIAD-93-57: Published: Jan 25, 1993. Publicly Released: Feb 26, 1993.

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Pursuant to a congressional request, GAO reviewed the effectiveness of the Agency for International Development's (AID) and the Department of Defense's (DOD) accountability and control procedures over economic and military assistance programs to Kenya, focusing on: (1) how the Kenyan government controlled and used U.S. aid; and (2) the adequacy of program controls.

GAO found that: (1) between 1986 and 1991, the United States transferred approximately $125 million in cash and commodities to Kenya to generate local currency; (2) local currency funds remained vulnerable to misuse or diversion due to weaknesses in AID monitoring and documentation controls over program expenditures, withdrawals, and use; (3) AID strengthened its policy guidance for local currency accountability, however, guidelines for existing local currency programs remained vague; (4) AID lacked adequate oversight over whether local currency fund expenditures were meeting program objectives; (5) since 1969, the United States has made guaranteed low-income housing improvement loans totalling $50 million; (6) delinquent housing loan repayments and the growing insolvency of the housing programs have delayed funding for other ongoing U.S. programs; (7) a local Kenyan government board was responsible for delays in food aid distribution; (8) since 1987, the United States has provided $47.3 million in military aid to Kenya; (9) Kenyan inventory controls over U.S. supplied military equipment were often weak and inadequate; and (10) there was a lack of integration between the Kenyan Army helicopter unit and the rest of the Kenyan Army and uncertainty existed about the potential use of U.S.-supplied helicopters.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: GAO found that controls over U.S.-generated local currency programs in Kenya were weak and recommended that AID apply stricter accountability standards, such as those contained in AID's 1991 guidance on local currency accountability. AID replied that applying new rules to existing agreements with the Kenyan government was not practical, and it could not strictly comply with the recommendation. However, it took steps under existing guidance to address certain problems. It contracted several audits that revealed weaknesses in the capability of the host government and recipient agencies to manage and account for these funds. As a result, AID has withdrawn earlier concurrence for the Kenyan government to withdraw local currency funds equal to $4.9 million until corrective actions are taken. The AID mission is also taking other steps to strengthen accountability, such as providing guidance and training for staff and ensuring that recipient agencies comply with reporting requirements.

    Recommendation: The Administrator, AID, should direct the AID mission in Nairobi to determine which provisions of the 1991 policy guidance on local currency accountability could be applied to agreements currently in effect without renegotiation with the Kenyan government and apply these accordingly.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Implemented

    Comments: The Mission has adopted alternative methods of addressing the concerns on local currency. All local currency recipients have been certified as a result of a series of audits and disbursements have resumed. A U.S.-affiliated CPA firm completed the audit of the local currency generated by CIP programs from 6/1/83 through 6/30/92. The report resulted in four recommendations of which three have been closed. In addition, based upon this audit and pertinent information from the Kenyan government Treasury Ministry, the Mission made a final determination on the allowability of about $55 million of questioned costs and the Regional Inspector General closed this recommendation. The Mission issued a Mission Order on 8/23/93 which clarifies the procedures and the roles of Mission staff in local currency oversight including generation, programming, monitoring, reporting, and auditing. A Local Currency Management Committee has been established and quarterly financial reporting has been initiated.

    Recommendation: The Administrator, AID, should direct the AID mission in Nairobi to determine which provisions of the 1991 policy guidance on local currency accountability could be applied to agreements currently in effect without renegotiation with the Kenyan government and apply these accordingly.

    Agency Affected: United States Agency for International Development: Office of Regional Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: AID will continue to pressure NCC to improve its management of Umoja II. The Regional Economic Development Services Office, Urban and Infrastructure Division (REDSO/UID), followed up on its recommendations to NCC and collaborated with it to commission a comprehensive management and financial analysis of Umoja II. The analysis focused on rent collection, interest rate and rent levels, and project management. The report indicated that, while improved rent collection had been implemented, adjustments to interest rates had not. In October 1994, the Town Clerk assured REDSO/UID that the recommendations would go to the relevant NCC committee. The Town Clerk and Director of Housing have since been replaced. Noting that the matter is very sensitive politically, REDSO/UID will continue pressing NCC to implement the recommendations. Once NCC adjusts interest rates to market-determined levels, REDSO/UID will pursue the matter of the Kenyan Treasury assuming the foreign exchange risk.

    Recommendation: The Administrator, AID, should direct the Regional Housing and Urban Development Office (RHUDO) to follow up on its May 1991 recommendations to the Nairobi City Commission (NCC) designed to maintain the Umoja II housing project and to identify any further requirements to ensure continued viability.

    Agency Affected: United States Agency for International Development

  4. Status: Closed - Implemented

    Comments: AID has taken action to ensure the prompt repayment of REDSO/UID loans. REDSO/UID is working closely with the AID mission in Kenya in maintaining contact with the Ministry of Finance and monitoring loan repayments. AID reports that, as loan repayment amounts due are cabled to REDSO/UID, it conveys the information to the Ministry desk officer. In 1994, Government of Kenya debt was rescheduled in an agreement that required that the Government become current on the subject loans. AID notes that, since the agreement, loan repayments have been quite regular.

    Recommendation: RHUDO should work with the Ministry of Finance to ensure prompt repayment of outstanding U.S. housing guaranty loans.

    Agency Affected: United States Agency for International Development: Office of Regional Housing and Urban Development

  5. Status: Closed - Implemented

    Comments: AID reports that REDSO/UID has succeeded in getting NCC to improve its revenue collection at the Umoja II site. In its May 1991 letter to NCC, REDSO/UID estimated that between 30 and 40 percent of accumulated amounts owed by tenant-purchasers were in arrears. A Deloitte & Touche report estimated that, in 1989/1990, accumulated arrears for Umoja II stood at 31 percent. During 1990/1991, with REDSO/UID persuasion, NCC started issuing eviction notices to defaulters and imposed an extra levy for late payments, with the result that most tenants cleared their outstanding balances. The process of clearing arrears continued into 1992 and 1993, and AID reported that by June 1993, the total outstanding arrears represented only 6.6 percent of total amounts due.

    Recommendation: RHUDO should work with NCC to strengthen the collection policies at the Umoja II housing site and to review mortgage payments to determine the best interest rate for recovering costs while still meeting the goal of providing affordable housing.

    Agency Affected: United States Agency for International Development

  6. Status: Closed - Implemented

    Comments: GAO could not verify the total amount of U.S. equipment provided to Kenya because the Defense Department lists were in some cases incomplete or inaccurate--a particular problem for munitions and sensitive items. Based on the recommendation, Defense provided more updated and meaningful equipment information to its security assistance office (SAO) in Kenya, placed this office on the quarterly distribution list for equipment delivery listings, and directed SAO to maintain requisition and delivery lists for end-use monitoring purposes.

    Recommendation: The Secretary of Defense should direct the Security Assistance Office (SAO) in Kenya to assist the Kenya military in strengthen controls over inventory, especially for munitions and other sensitive items. At a minimum, SAO should provide a training mechanism for sharing U.S. inventory techniques with appropriate Kenyan military personnel and encourage logistics training through the International Military Education and Training program.

    Agency Affected: Department of Defense

 

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