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United States General Accounting Office: 
GAO: 

Report to the Chairman, Subcommittee on National Security, Veterans 
Affairs, and International Relations, Committee on Government Reform, 
House of Representatives: 

April 2002: 

Foreign Assistance: 

USAID Relies Heavily on Nongovernmental Organizations, but Better Data 
Needed to Evaluate Approaches: 

GA0-02-471: 

GAO Highlights: 

Highlights of GAO-02-471, a report to the Subcommittee on National 
Security, Veterans Affairs, and International Relations, Committee on 
Government Reform, House of Representatives. 

Why GAO Did This Study: 

Some members of Congress have expressed concern that the U.S. Agency 
for International Development's (USAID) management of the foreign aid 
program may not take full advantage of nongovernmental organizations 
and use the most effective approaches. To help address this issue, GAO 
(1) prepared a profile of USAID's use of nongovernmental organizations 
to provide foreign aid, (2) analyzed the funding mechanisms for 
employing these organizations, and (3) compared USAID's approaches to 
using nongovernmental organizations with other donors' approaches. 

What GAO Found: 

USAID relies heavily on nongovernmental organizations to deliver 
foreign assistance. GAO found that in fiscal year 2000, USAID directed 
about $4 billion of its $7.2 billion assistance funding to 
nongovernmental organizations, including at least $1 billion to 
private voluntary organizations (charities) working overseas. However, 
the amount of funding USAID provides to specific types of 
organizations for different kinds of assistance activities is unknown 
because USAID lacks comprehensive and reliable information in this 
area. 

USAID uses a range of funding mechanisms to provide assistance through 
nongovernmental organizations, such as endowments and global grants 
and contracts. The mechanisms have both potential advantages and 
disadvantages in terms of cost, time, selection of implementers, and 
USAID's authority to oversee assistance activities. USAID generally 
favors mechanisms that delegate a large amount of control over 
programs to implementing organizations. However, the agency has not 
compiled detailed data on its use of specific types of funding 
mechanisms or evaluated their effectiveness. 

USAID employs many of the same approaches to using nongovernmental 
organizations as other donors do. The agency and other donors may 
emphasize different funding mechanisms, however, with USAID tending to 
choose those offering greater programmatic and financial controls and 
competition. GAO found a few donors who use nongovernmental 
organizations in ways that are significantly different from USAID's 
usual approaches. 

Figure: USAID Assistance Funds Obligated During Fiscal Year 2000: 

[Refer to PDF for image: illustration] 

USAID obligations during FY 2000: $7.2 billion: 

Contracts, grants, and cooperative agreements with nongovernmental
organizations: $4 billion; 

Fund transfers to foreign countries: $1.9 billion; 

Funding of U.S. government agencies: $0.9 billion; 

Funding of public international organizations: $0.2 billion; 

Other assistance: $0.2 billion. 

USAID operating expenses: $0.5 billion. 

Source: GAO analysis of USAID data. 

[End of figure] 

What GAO Recommends: 

Due to the limitations GAO identified in USAID data, GAO recommends 
that USAID compile more reliable data on the extent to which the 
agency uses specific types of organizations and funding mechanisms to 
enable further analysis of USAID's assistance approaches and their 
effectiveness. 

USAID agreed with our findings and recommendation and indicated that 
it has taken the agency's data shortfalls into account in its ongoing 
efforts to review and replace its business systems. 

This is a test for developing highlights for a GAO report. The full 
report, including GAO's objectives, scope, methodology, and analysis 
is available at [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-02-471]. For additional 
information about the report, contact Jess Ford (202) 512-4268. To 
provide comments on this test highlights, contact Keith Fultz (202-512-
3200) or email HighlightsTest@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

USAID Relies Heavily on Nongovernmental Organizations to Carry Out 
Assistance Activities: 

USAID Has a Flexible Array of NGO Funding Mechanisms, Each with 
Potential Advantages and Disadvantages: 

Similarities and Differences in Approaches of USAID and Some Other 
Donors: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Major NGO Recipients of USAID Fiscal Year 2000 
Procurement Funds: 

Appendix III: Faith-Based Private Voluntary Organizations: 

Appendix IV: Comments from the U.S. Agency for International 
Development: 

GAO Contacts: 

Acknowledgments: 

Appendix V: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Selected NGO Funding Mechanisms Used by USAID: 

Table 2: Top 10 NGO Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Table 3: Top 10 For-Profit Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Table 4: Top 10 PVO Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Table 5: Top 10 University Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Figures: 

Figure 1: USAID Obligations During Fiscal Year 2000: 

Figure 2: Distribution of Fiscal Year 2000 Funding Devoted to PVO-
Implemented Programs by Major Program Area: 

Figure 3: Distribution of Fiscal Year 2000 Funding Devoted to PVO-
Implemented Programs by USAID Bureaus: 

Figure 4: Obligations to Nongovernmental Organizations During Fiscal 
Year 2000, by Type of Agreement: 

Figure 5: Faith-Based Versus Secular PVOs: 

Figure 6: Breakdown of Faith-Based PVO's by Denomination: 

Abbreviations: 

USAID: U.S. Agency for International Development: 

NGO: Nongovernmental organization: 

PVO: Private voluntary organization: 

[End of section] 

United States General Accounting Office: 
Washington, DC 20548: 

April 25, 2002: 

The Honorable Christopher Shays: 
Chairman, Subcommittee on National Security, Veterans Affairs, and 
International Relations: 
Committee on Government Reform: 
House of Representatives: 

Dear Mr. Chairman: 

In recent years, U.S. officials have shown increased interest in 
transferring certain social welfare functions of the U.S. government to
nongovernmental organizations, both commercial and not for profit. 
Such organizations have expressed interest in and, according to U.S. 
officials, have demonstrated the ability to use federal funds to serve 
a wider pool of beneficiaries and help meet the U.S. government's 
objectives in a variety of areas. One of these areas is the delivery 
of U.S. foreign assistance to developing countries and countries 
transitioning from communism to market-oriented democracy. Many 
nongovernmental organizations active in international development have 
years of experience working overseas and have received millions of 
dollars in funds from private sources as well as the U.S. government 
for this work. 

Some members of Congress have expressed concern that the U.S. Agency 
for International Development's (USAID) management of the U.S. foreign 
aid program may not take full advantage of the potential of 
nongovernmental organizations and use the most effective approaches 
for delivering aid. To help address this issue, at your request, we 
have (1) prepared a profile of USAID's use of private voluntary 
organizations and other nongovernmental organizations to provide U.S. 
foreign aid; (2) analyzed the funding mechanisms USAID uses to employ 
these organizations, including the potential advantages and 
disadvantages of each mechanism and the degree of control USAID 
exercises over program implementation; and (3) compared USAID's 
approaches to using nongovernmental organizations with other private 
and official donors' approaches. To meet these objectives, we 
conducted interviews with and collected and analyzed documentation 
from U.S. government agencies, nongovernmental organizations, and 
other international donors in the United States and in three 
developing countries overseas. We also visited a number of aid 
activities in these countries run by private charities and other 
nongovernmental organizations and analyzed financial information in 
several USAID databases. A detailed description of the scope and 
methodology for our review is included in appendix I of this report. 

Results in Brief: 

USAID relies heavily on nongovernmental organizations to deliver 
foreign assistance. Nongovernmental organizations, including private 
voluntary organizations (charities); consulting firms; and 
universities, are active throughout all of USAID's program areas. We 
found that in fiscal year 2000, USAID directed about $4 billion of its 
$7.2 billion assistance funding to nongovernmental organizations, 
including at least $1 billion to U.S. private charitable organizations 
working overseas. However, the amount of funding that USAID provides 
to specific types of nongovernmental organizations for various types 
of assistance activities is unknown, because USAID lacks comprehensive 
and reliable information in this area. Furthermore, according to 
USAID, definitions of the different types of organizations are not 
universally accepted and mutually exclusive, making it difficult to 
categorize them consistently across the agency. 

USAID has adopted many different types of contracts, grants, and 
cooperative agreements to provide assistance through nongovernmental 
organizations. This range of funding mechanisms allows USAID staff 
significant flexibility in drawing upon the strengths and expertise of 
a large community of experienced nongovernmental organizations 
worldwide. The different mechanisms have both potential advantages and 
disadvantages in terms of cost, time, selection of potential 
implementers, and USAID's authority to oversee assistance activities, 
among other factors. Nearly all mechanisms have minimum financial 
accountability requirements, and only a few mechanisms entail 
increased financial risk for USAID funds. USAID collects data on its 
use of major funding agreements—contracts, grants, and cooperative 
agreements—which indicate that the agency delegates a significant 
amount of day-to-day control over aid delivery to the implementing 
organizations. However, the agency has not compiled detailed data on 
its use of specific types of funding mechanisms or systematically 
evaluated their relative effectiveness at an agencywide level. Without 
better data it would be difficult for USAID managers to begin the 
process of determining which types of organizations and funding 
mechanisms are likely to be most effective at achieving a desired 
development impact. 

USAID uses many of the same funding mechanisms that other donor 
organizations use. We found that, compared with USAID, official donors 
provide more of their funding directly to foreign governments and 
private donors and spend more of their funding on unsolicited 
proposals. USAID emphasizes the use of funding mechanisms that involve 
greater programmatic and financial controls and competition for 
funding among nongovernmental organizations. We also identified two 
approaches to using nongovernmental organizations that USAID has not 
adopted on a significant scale, including routine funding by the 
Canadian International Development Agency of project proposals 
conceived and submitted independently by nongovernmental organizations. 

To help ensure that USAID makes effective use of nongovernmental 
organizations in carrying out its international development 
activities, we are recommending that USAID compile more reliable data 
on the extent to which the agency uses specific types of organizations 
and funding mechanisms, so that further analysis of the effectiveness 
of USAID's assistance approaches may be conducted. USAID generally 
agreed with our findings and recommendation and indicated that the 
agency has taken its data shortfalls into account in its ongoing 
efforts to review and replace its business systems. 

Background: 

USAID is an independent agency that provides economic, development, 
and humanitarian assistance around the world in support of U.S. 
foreign policy goals. USAID's program budget covers four program 
accounts: (1) Development Assistance, (2) the Child Survival and 
Diseases Program Fund, (3) International Disaster Assistance, and (4) 
Transition Initiatives. Additionally, USAID manages program funds 
under other accounts jointly administered with the State Department: 
Economic Support Funds, Assistance for Eastern Europe and the Baltic 
States, and Assistance for the Independent States of the Former Soviet 
Union. Another assistance program, the P.L. 480 Title II Food for 
Peace Program, is administered by USAID but falls under the Department 
of Agriculture's budget. USAID is organized into geographic bureaus 
responsible for overall activities in countries where USAID has 
programs and functional bureaus that conduct agency regional or 
worldwide programs. USAID has field missions in four regions of the 
world (Sub-Saharan Africa, Asia and the Near East, Latin America and 
the Caribbean, and Europe and Eurasia). 

USAID provides assistance through partnerships with other 
organizations and individuals. Organizations carrying out USAID-funded 
programs typically fall into one of three major categories: 
nongovernmental organizations (NGO); government entities (host country 
and U.S. government agencies); and public international organizations, 
such as U.N. agencies. The agency makes direct cash payments to some 
foreign governments and finances the provision of U.S. commodities, 
such as equipment and machinery, intermediate goods, and raw 
materials, to many foreign countries. In addition, USAID funds other 
U.S. government agencies through interagency agreements to provide 
assistance overseas. USAID also obtains goods and services for 
delivery to beneficiaries overseas. It hires individuals and 
organizations to implement various development assistance programs, 
such as providing technical assistance, conducting research, providing 
policy advice, implementing community-based assistance activities, and 
constructing infrastructure assistance activities. The term NGO 
includes for-profit firms, educational institutions, cooperative 
development organizations, and private voluntary organizations (PVO). 
PVOs are tax-exempt, nonprofit organizations that receive voluntary 
contributions of money, staff time, or in-kind support from the 
general public and are engaged in voluntary, charitable, or 
development assistance activities. PVOs and NGOs can be U.S. based, 
international, or locally based in the host country. 

USAID provides development-related goods and services from 
nongovernmental organizations, primarily through three types of legal 
agreements: grants, cooperative agreements, and contracts. Under a 
grant agreement, the recipient is free to implement an agreed-upon 
development program without substantial involvement by USAID. Under a 
cooperative agreement the implementing organization has a significant 
amount of independence in carrying out its program, but USAID is 
involved in selected areas deemed essential to meeting program 
requirements and ensuring achievement of program objectives.[Footnote 
1] Under a contract, USAID determines the requirements and standards 
for the assistance activities and frequently provides technical 
direction during contract implementation. Contracts also provide 
greater control over costs and allow USAID to terminate the agreement 
unilaterally if circumstances warrant. 

USAID guidance contains criteria for selecting the appropriate 
assistance or acquisition agreement.[Footnote 2] This guidance spells 
out the level of USAID control allowed under each type of legal 
agreement but places no restrictions on the type of organizations that 
are eligible to receive funding under grants, cooperative agreements, 
and contracts. 

In accordance with U.S. law,[Footnote 3] USAID policy requires full 
and open competition for grants, cooperative agreements, and contracts 
in most circumstances. USAID also requires recipients of its funding 
to demonstrate that they have adequate financial resources; a 
satisfactory record of performance; and accounting, recordkeeping, and 
overall management systems that meet applicable standards. 
Furthermore, they must undergo an independent annual audit by a USAID-
approved auditing firm if they receive more than $300,000 in U.S. 
government funds in a fiscal year. 

USAID Relies Heavily on Nongovernmental Organizations to Carry Out 
Assistance Activities: 

USAID depends on nongovernmental organizations to provide assistance 
in all areas of its work, and a steady flow of USAID funds goes 
directly to private voluntary organizations. The agency provides even 
more funding indirectly to private voluntary organizations through 
other organizations, but USAID does not compile specific information 
on this funding. USAID data are not comprehensive and reliable enough 
to permit a detailed analysis of the agency's use of different types 
of nongovernmental organizations. 

NGOs Deliver a Large Amount of Foreign Assistance: 

USAID relies on NGOs to deliver a majority of its foreign assistance 
funds. USAID funding obligations during fiscal year 2000[Footnote 4] 
included about $4 billion to nongovernmental organizations to 
implement assistance programs. In addition, USAID's fiscal year 2000 
program budget for foreign assistance included about $3.2 billion for 
transfers to host countries,[Footnote 5] interagency transfers, 
funding of public international organizations, and commodity imports. 
[Footnote 6] Figure 1 shows USAID obligations during fiscal year 2000. 

Figure 1: USAID Obligations During Fiscal Year 2000: 

[Refer to PDF for image: illustration] 

USAID obligations during FY 2000: $7.2 billion[A]: 

Contracts, grants, and cooperative agreements with nongovernmental
organizations: $4 billion; 

Fund transfers to foreign countries: $1.9 billion; 

Funding of U.S. government agencies: $0.9 billion; 

Funding of public international organizations: $0.2 billion; 

Other assistance[B]: $0.2 billion. 

USAID operating expenses: $0.5 billion. 

[A] Includes obligations from prior years' obligating authorities made 
from October 1, 1999, to September 30, 2000. 

[B] Includes funding for commodities procurement and shipping. 

Source: GAO analysis of USAID budget and procurement data. 

[End of figure] 

Many types of NGOs implement USAID-funded assistance activities 
throughout the world, as illustrated by some of the assistance 
activities we reviewed during our fieldwork. With USAID funding, major 
U.S. and local charities, such as Save the Children, provided food to 
victims of Hurricane Mitch in Nicaragua and Honduras. Educational 
institutions, including Johns Hopkins University and the Pan-American 
Agricultural School implemented USAID-funded water and sanitation-
related activities in the region in response to the disaster. In South 
Africa, USAID contracted with Deloitte Touche Tohmatsu to help 
historically disadvantaged groups in South Africa participate in the 
privatization of government enterprises. USAID has also funded many 
small nongovernmental organizations, such as an association of mothers 
in Cape Town, South Africa, to create a babysitting cooperative to 
care for poor, orphaned, and neglected children. (See appendix II for 
a listing of nongovernmental organizations receiving the most USAID 
funding in fiscal year 2000.) 

USAID Databases Permit Detailed Analysis Only for Direct Funding to 
PVOs: 

USAID does not collect financial data that would allow a detailed 
funding analysis for any specific type of nongovernmental 
organizations except private voluntary organizations. USAID maintains 
various databases, primarily from the budget and procurement offices 
and the Office of Private and Voluntary Cooperation, which provide 
some information on the types of organizations receiving funding. In 
two of these databases USAID specifically tracked funding for PVOs. 
However, USAID's databases did not contain similar information for 
other types of organizations, such as commercial firms, universities, 
or other nonprofits. Data for these organizations were maintained only 
in USAID's procurement database; but, according to USAID procurement 
officials, this system is plagued by data-entry flaws, and 
organizations are frequently categorized incorrectly. According to 
USAID, definitions of the different types of organizations are not 
universally accepted and mutually exclusive, making it difficult to 
categorize them consistently across the agency. In May 2001, the USAID 
Administrator acknowledged that the agency's data on its use of PVOs 
and NGOs were not complete due to the disparate accounting systems and 
limitations in its data-coding procedures, which the agency intended 
to correct with the adoption of a new accounting system in a few years. 

According to USAID data, the portion of USAID funding devoted to PVO-
implemented programs totaled about $1 billion in fiscal year 2000. 
[Footnote 7] Historically, the percentage of the program budget 
obligated for PVOs between 1995 and 2000 has ranged from 14.2 percent 
in 1997 to 19.1 percent in 1998. According to data from USAID's budget 
office, about two-thirds of the funding USAID obligated for PVO 
programs in fiscal year 2000 was for U.S.-based, voluntary 
organizations involved in international development—-while the 
remaining one-third was for international, third-party, and local 
organizations as well as cooperative development organizations. (See 
appendix IV for information on religious affiliation of U.S. PVOs.) 

However, these figures likely understate the total amount of all USAID 
funds provided to PVOs because they do not capture funds provided 
indirectly through other organizations. Other U.S. government agencies 
and foreign governments may use USAID funds for PVO-implemented 
programs, but USAID does not track this information. Furthermore, 
according to USAID officials and records we reviewed, PVOs get 
additional funding under separate subcontract or subgrant arrangements 
with other implementers of USAID programs. We were unable to calculate 
the amount of this indirect funding because USAID does not compile 
comprehensive information on the use of subgrants and subcontracts. 
For example, for one grants-management contract we reviewed in South 
Africa, subgrants to other nongovernmental organizations accounted for 
a large majority of contract expenditures; but the mission was not 
required to report information on these subgrants to USAID 
headquarters. 

PVO-implemented programs extended throughout all of USAID's five major 
program areas in fiscal year 2000, as shown in figure 2. For example, 
as we observed during our fieldwork, U.S. PVOs worked to rebuild the 
infrastructure and economy of Nicaragua and Honduras after Hurricane 
Mitch by constructing roads and bridges and training farmers in more 
efficient agricultural methods. In South Africa, local PVOs helped 
establish health clinics and trained community health workers to 
provide counseling and medical care for persons with HIV/AIDS, 
tuberculosis, and other diseases. 

Figure 2: Distribution of Fiscal Year 2000 Funding Devoted to PV0-
Implemented Programs by Major Program Area: 

[Refer to PDF for image: pie-chart] 

Population and health: 38%; 
Economic growth and agriculture: 26%; 
Democracy and governance: 21%; 
Environment: 9%; 
Education and training: 6%. 

Total: $1 billion. 

Source: GAO analysis of USAID budget data. 

[End of figure] 

Figure 3 further shows that USAID used PVOs throughout all four of its 
geographic regions, in its Global Bureau, and in its Bureau of 
Humanitarian Response.[Footnote 8] 

Figure 3: Distribution of Fiscal Year 2000 Funding Devoted to PV0-
Implemented Programs by USAID Bureaus: 

[Refer to PDF for image: pie-chart] 

Africa: 27%; 
Europe/Eurasia: 21%; 
Asia/Near East: 19%; 
Latin America/Caribbean: 17%; 
Global: 11%; 
Humanitarian: 6%. 

Total: $1 billion. 

Source: GAO analysis of USAID budget data. 

[End of figure] 

Since USAID does not routinely collect comprehensive and reliable data 
on its use of other specific types of nongovernmental implementing 
organizations, such as for-profit firms and universities, it would 
have difficulty evaluating the relative effectiveness of the different 
types of organizations. For example, without basic information about 
where and when USAID has used universities to strengthen educational 
institutions in Africa, it cannot compare that overall experience with 
its experience using private voluntary organizations or other type of 
organization in similar circumstances. Hence it would be difficult for 
USAID managers to begin the process of determining which approach 
would be more likely to achieve the desired development impact. 

USAID Has a Flexible Array of NGO Funding Mechanisms, Each with 
Potential Advantages and Disadvantages: 

Within the broad categories of contracts, grants, and cooperative 
agreements, USAID has developed a highly flexible system of working 
with nongovernmental organizations to provide foreign assistance, 
using a wide variety of funding mechanisms. These mechanisms give 
USAID missions and bureaus many options for meeting their objectives, 
depending on the specific circumstances. All have potential advantages 
and disadvantages, and a few entail more financial risk than the 
others. While USAID data indicate that, overall, the agency generally 
favors agreements that delegate a significant amount of control over 
program implementation to nongovernmental organizations, we could not 
determine the extent to which USAID uses each of the specific types of 
funding mechanisms. Nor could we determine the comparative 
effectiveness of these mechanisms because USAID has not compiled 
relevant evaluative data for this.
	
Choice of Funding Mechanism Entails Trade-Offs: 

In addition to standard contracts, grants, and cooperative agreements, 
USAID uses several different variations of these funding mechanisms to 
deliver foreign assistance using nongovernmental organizations, 
including grants management contracts, umbrella grants, and 
endowments. Potential advantages of these funding mechanisms include 
increasing the number and diversity of organizations involved in USAID 
programs, while limiting the procurement and management burdens on the 
missions; drawing more on nongovernmental organizations to design 
programs; fostering a community of sustainable nongovernmental 
organizations; and involving other private sector partners in the 
development process. Potential disadvantages associated with some of 
these mechanisms include increased risk that programs will not meet 
USAID's objectives since several mechanisms reduce USAID missions' 
involvement in program design, selection of implementers, and 
management of program activities; and some limit or preclude 
competition among implementing organizations. Also, a few mechanisms 
involve increased financial risks. Table 1 shows potential trade-offs 
associated with various funding mechanisms. Determining the 
appropriate funding mechanism depends heavily on the specific 
circumstances in the country and sector involved. 

Table 1: Selected NGO Funding Mechanisms Used by USAID: 

Contracts: 

Funding mechanism: Standard contract; 		
Description: Agreement with a contractor, usually awarded 
competitively, to provide goods and services meeting USAID 
specifications, with substantial USAID involvement and technical 
direction. USAID uses several types of contracts with different 
pricing arrangements (cost plus fixed fee, cost-plus-incentive fee, 
cost contract, cost-sharing, cost-plus-award fee); 
Potential advantages: 
* Wide selection of potential contractors; 
* High level of accountability-—substantial USAID involvement 
permitted in design and implementation; 
Potential disadvantages: 
* Time-consuming award process; 
* Resource intensive to manage and monitor contract implementation. 

Funding mechanism: Funding of unsolicited proposal; 
Description: Contract issued noncompetitively, based on proposal 
designed and submitted independently by applying organization. 
Potential advantages: 
* Abbreviated award process; 
* Identifies needs USAID may be unaware of; 
* Encourages NGO creativity in designing solutions; 
Potential disadvantages: 
* Limited selection of implementing organizations; 
* Increased cost due to lack of competition; 
* Other advantages of competition lost; 
* Limited input into design of program; 
* Difficulty ensuring that no informal solicitation has occurred. 

Funding mechanism: Mission use of global indefinite quantities 
contract; 
Description: Contract issued to an organization to implement an 
assistance program on a global or regional basis; missions issue task 
orders to contractor to implement associated, country-specific 
assistance activities. Main contract awarded competitively and 
associated awards with limited competition only among other relevant 
global/regional contract holders; 
Potential advantages: 
* Quicker[A] access to expert resources by missions after headquarters 
has awarded contract; 
* Lower level of administrative burden for missions; 
Potential disadvantages: 
* Missions have more limited selection of contractors; 
* May not precisely meet missions' needs; 
* More expensive than using local contractor; 
* Tension between mission and headquarters over control of program. 

Funding mechanism: Grants management contract; 
Description: Contract with an organization to award and manage grants 
to other nongovernmental organizations; 
Potential advantages: 
* Easier award process for missions; 
* Additional administrative capacity; 
* Additional technical expertise; 
* Multiple implementing organizations with single contract to award 
and administer; 
Potential disadvantages: 
* Additional layer of program administration; 
* Additional program costs. 

Grants and cooperative agreements: 
			
Funding mechanism: Standard cooperative agreement; 
Description: Award usually issued competitively to an organization or 
individual to implement an assistance program with limited USAID 
involvement; 
Potential advantages: 
* Wide selection of potential awardees; 
Potential disadvantages: 
* Time-consuming award process; 
* Less accountability than with contract—-lower level of involvement 
in implementation permitted. 

Funding mechanism: Standard grant; 
Description: Award usually issued competitively to an organization or 
individual to
implement an assistance program independently of USAID involvement; 
Potential advantages: 
* Wide selection of potential awardees; 
Potential disadvantages: 
* Time-consuming award process; 
* Less accountability than with contract and cooperative agreement-—no
substantial involvement in implementation permitted. 

Funding mechanism: Funding of unsolicited proposal; 
Description: Award issued noncompetitively, based on proposal designed 
and submitted independently by applying organization; 
Potential advantages: 
* Abbreviated award process; 
* Identifies needs USAID may be unaware of; 
* Encourages NGO creativity in designing solutions; 
Potential disadvantages: 
* Limited selection of implementing organizations; 
* Increased cost due to lack of competition;
* Other advantages of competition lost; 
* Limited input into design of program; 
* Difficulty ensuring that no informal solicitation has occurred. 

Funding mechanism: Funding of proposals solicited through annual 
program statement; 
Description: Award issued semicompetitively based on general 
solicitation for bids, with very few specifications, for new 
assistance activities compatible with the mission’s overall program; 
Potential advantages: 
* Abbreviated award process; 
* Identifies needs USAID may be unaware of; 
* Encourages NGO creativity in designing solutions; 
Potential disadvantages: 
* Increased cost due to limited competition; 
* Other advantages of competition lost; 
* Limited input into design of program. 

Funding mechanism: Leader with associates; 
Description: Award issued competitively to an organization to 
implement a program on a global or regional basis; mission can award 
grants or cooperative
agreements to the organization to implement associated country-specific
assistance activities; 
Potential advantages: 
* Quick and easy award process for missions; 
Potential disadvantages: 
* Missions have more limited selection of implementing organizations. 

Funding mechanism: Umbrella grant/cooperative agreement; 
Description: Award to a lead organization to award and manage 
subgrants to other organizations; 
Potential advantages: 
* Additional administrative capacity; 
* Additional technical expertise; 
* Multiple implementing organizations with single contract to award 
and administer; 
Potential disadvantages: 
* Additional layer of program administration; 
* Additional overhead costs; 
* Limited control over grantee selection. 

Funding mechanism: Endowment/Trust; 
Description: Award to an organization for it to invest to generate a 
stream of income to fund its operations and/or programs over the long 
term; 
Potential advantages: 
* Enhanced long-term sustainability of organization; 
* Leverages other donor funding; 
* Limited long-term administrative burden; 
* Encourages NGO creativity in designing solutions; 
Potential disadvantages: 
* Risk of financial loss from lower than anticipated investment yield; 
* Very limited input into program design and implementation; 
* Limited direct programmatic impact; 
* Expensive; 
* Significant initial administrative burden. 

Funding mechanism: Matching grant; 
Description: Grant intended to build the capacity of U.S. PVOs and 
strengthen their partnerships with foreign NGOs; 
Potential advantages: 
* Enhances NGO capacity and sustainability; 
* Matching requirement helps ensure NGO commitment; 
* Encourages NGO creativity in designing solutions; 
Potential disadvantages: 
* Limited direct programmatic impact; 
* Match requirement limits number of eligible organizations. 

Funding mechanism: Support for network/consortium; 
Description: Award to support development and operation of a network 
or consortium of NGOs, sometimes co-financed by other donors; 
Potential advantages: 
* Leverages resources of other donors; 
* Synergy of multiple organizations; 
* Multiple implementing organizations with single contract to award 
and administer; 
* Enhances NGO capacity and sustainability; 
Potential disadvantages: 
* More limits on input into program; 
* Compromise with other donors. 

Funding mechanism: Support for intersectoral partnerships; 
Description: Various programs to foster cooperation and collaboration 
among NGOs, government, and private sector organizations, including 
foundations and businesses; 
Potential advantages: 
* Leverages private resources; 
* Helps focus private sector philanthropy; 
Potential disadvantages: 
* Objectives may not be compatible. 

Other mechanisms: 

Funding mechanism: Credit programs; 
Description: Loans and loan guaranties for private financing of 
microenterprises, housing and urban infrastructure, and other 
development-related assistance activities; 
Potential advantages: 
* Leverages investment capital from private sources; 
Potential disadvantages: 
* Time consuming to arrange credit deals; 
* Risk of financial loss from higher than anticipated loan default 
rate. 

[A] Unless otherwise noted, relational terms such as "additional" or 
"less" in this table refer to the mechanism's relationship to the 
standard type of each mechanism under which it is listed here. 

Source: GAO analysis of USAID information. 

[End of table] 

Potential Advantages: 

Some of these funding mechanisms enable USAID to draw on a large 
number of diverse nongovernmental organizations while limiting the 
procurement and management workload for the missions. Use of USAID 
global contracts and leader-with-associate grants allow missions with 
limited staff resources to use a pool of nongovernmental organizations 
preselected at USAID headquarters to respond quickly to countries' 
developmental needs. For instance, the USAID mission in South Africa 
used several global agreements preawarded by USAID's Bureau of 
Population, Nutrition, and Health to acquire NGO resources to 
establish several local health assistance activities. Also, umbrella 
grants and grants management contracts enable USAID to "outsource" the 
grants award and management process, thus maximizing the number of 
partner organizations involved in a program without creating an undue 
management burden for the missions. Intermediary organizations can 
fulfill the necessary competition and financial accountability 
requirements on USAID's behalf. Agreements with consortia or networks 
of development-related organizations also give USAID access to the 
resources of a number of affiliated organizations using a single 
funding mechanism. For example, in the NGO Networks for Health 
program, USAID entered into a single 5-year cooperative agreement with 
a coalition of four U.S. PVOs and one technical agency working to 
improve family planning, reproductive health, child survival, and 
REV/AIDS services worldwide. 

Some mechanisms allow NGOs more discretion in designing assistance 
activities to respond to countries' development needs than a standard 
grant, cooperative agreement, or contract. By funding unsolicited 
proposals as well as proposals submitted to USAID missions in response 
to their Annual Program Statements,[Footnote 9] USAID allows 
organizations to design assistance programs relatively independently 
within wide parameters. According to USAID officials in Nicaragua, 
after Hurricane Mitch, the USAID mission issued an Annual Program 
Statement and relied heavily on the proposals it received from NGOs to 
establish a portfolio of assistance activities it could implement 
quickly; NGOs operating in Nicaragua were considered the most 
knowledgeable about the hurricane victims' needs, and USAID funded 
many of the proposals they submitted. 

Several of these mechanisms are aimed at fostering a community of 
nongovernmental organizations that can function effectively and 
cooperatively over the long term. USAID's matching grants program 
helps U.S.-based PVOs build their operational and technical capacity 
while encouraging them to raise funds from other sources for the same 
purpose. Endowments provide funding for an extended period of time, 
often 10 years or more, during which the recipient organizations may 
be expected to become sustainable without USAID funds. For example, a 
USAID endowment for a charitable foundation in South Africa to assist 
and educate disadvantaged youths covers long-term administrative 
costs, which foundation representatives expect to replace with funding 
from other sources, such as other donations and small commercial 
enterprises, within a few years. USAID also awards grants and 
cooperative agreements to NGO networks to strengthen the long-term 
working relationships among organizations with similar or 
complementary expertise and objectives. For example, USAID has helped 
fund the International HIV/AIDS Alliance, which USAID conceived as a 
mechanism to link and support nongovernmental and community-based 
organizations throughout the developing world that are fighting the 
HIV/AIDS pandemic. 

Finally, some mechanisms involve private-sector entities, including 
foundations and corporations, in the development process. According to 
USAID, many of these organizations can bring significant resources to 
bear, but they could benefit from the expertise and field presence of 
USAID and its traditional nongovernmental partners. Through 
intersectoral partnerships—joint assistance activities among 
organizations in the governmental, NGO, and private sectors—USAID has 
worked at leveraging the contribution of private sector entities for 
greater development impact. For example, according to USAID officials, 
under the Millennium Alliance for Social Investment, USAID funds a 
cooperative agreement with a U.S. private voluntary organization to 
match businesses and nonprofits for strategic community investments 
and to provide training and technical assistance to make the 
partnerships work. Such efforts serve as models for USAID's new Global 
Development Alliance, a major element of its current development 
strategy.[Footnote 10] 

Potential Disadvantages: 

Some of these funding mechanisms require USAID missions to delegate 
more authority over program design and implementation to others than 
under a standard grant, contract, or cooperative agreement. This may 
increase the risk that the programs implemented will not meet the 
missions' objectives. 

Using some mechanisms limits USAID's authority to influence the design 
of programs. For example, in funding unsolicited proposals, USAID 
procurement rules do not permit USAID officials' involvement in the 
conception phase of a program. Also, in endowments, USAID might fund 
an organization's administrative function and overall program instead 
of particular program activities; in such cases, USAID would not 
directly influence these activities as they are being designed and 
implemented. Lack of involvement in program design can limit USAID's 
ability to ensure that its programs are responsive to the needs of 
host countries and are designed with their collaboration. 

With some mechanisms, USAID missions may have more limited involvement 
in the choice of assistance activity implementers. In the case of 
global contracts, preapproved implementers are selected by 
headquarters bureaus and may not be as qualified or able to perform as 
cost effectively as other organizations available locally; thus, they 
may not be the best resource for achieving program objectives in a 
particular country. In South Africa, according to USAID mission 
officials, USAID has not used global agreements with U.S. PVOs to 
implement programs in some cases, because providing grants to capable 
local organizations is more compatible with the mission's development 
strategy. Furthermore, with umbrella grants and cooperative 
agreements, USAID officials are generally not permitted, under USAID 
policy, to be directly involved in selecting subgrantees. This limits 
USAID's ability to ensure that all recipients of USAID funds are the 
most qualified to meet program objectives. 

Management of some funding mechanisms may be potentially more 
cumbersome and expensive than awarding standard grants, cooperative 
agreements, and contracts. Several of these mechanisms entail multiple 
layers of program administration, which can increase program costs and 
have programmatic implications. For example, programs implemented 
through headquarters-awarded indefinite quantity contracts may be 
administered by officials both in headquarters and the missions. 
According to a senior official in USAID's Bureau for Global Health, 
this can introduce tension and inefficiency in the management of some 
programs. Also, umbrella mechanisms and grants management contracts 
may increase the overhead costs for a program, since the program 
implementer may charge USAID a fee for administering subgrants and 
subcontracts. For example, the grants management contractor we visited 
in South Africa charged USAID a 3 percent management fee for all the 
funds it awarded through subgrants or subcontracts. If fees charged by 
intermediaries are greater than USAID's potential costs of 
implementing the assistance activities more directly, the cost of the 
program would increase with use of these funding mechanisms; and less 
USAID funds would reach their intended beneficiaries. 

Finally, while it is USAID's policy to award funding competitively in 
most cases, use of some of these mechanisms may limit or eliminate 
competition. According to USAID policy, competition helps ensure that 
assistance activities will (1) have predefined objectives to maximize 
impact, (2) be consistent and mutually reinforcing, and (3) draw 
support from the best available sources. Furthermore, limiting the 
number of potential implementers bidding on a program may cause 
USAID's cost to be higher than with full competition. 

Elevated Financial Risk Associated with Two Funding Mechanisms: 

Only two of USAID's funding mechanisms listed in this report, 
endowments and credit programs, involve significantly more financial 
risk for USAID than standard grants, contracts, and cooperative 
agreements. Endowments are subject to a possible loss of value due to 
market fluctuations, depending on how they are invested. With credit 
programs, loan default rates may be higher than anticipated. Use of 
these mechanisms can be particularly complex, and they require special 
approval at USAID headquarters. 

We found that all of the other mechanisms entail the same financial 
accountability requirements and therefore none poses an increased 
financial risk for USAID. Since USAID's financial management 
prequalification and auditing requirements apply to all fund 
recipients, regardless of whether they receive funds directly from 
USAID or through an intermediary organization, USAID's lower direct 
involvement in the implementation of assistance activities does not 
necessarily imply looser financial controls. Data available from USAID 
in two countries we visited indicated that the risk of USAID 
contractors and grantees misusing funds was relatively low. For 
example, audits of about $18 million in funds received by 13 
nongovernmental organizations in Nicaragua for Hurricane Mitch 
disaster relief revealed only about $23,000 (about 0.1 percent) in 
"questioned" or potentially unallowable expenditures. In Southern 
Africa (Botswana, Uganda, South Africa, Zimbabwe, Uganda, Malawi, 
Kenya, Tanzania, and Rwanda), audits found that $235,232 of about $43 
million (0.5 percent) provided to nongovernmental organizations in 
fiscal year 2000 was ineligible for USAID funding or unsupported by 
documentation. 

Limited Data Available on USAID's Use of Various Funding Mechanisms: 

While USAID maintains data on the use of the three general categories 
of funding agreements—grants, cooperative agreements, and contracts—no 
data were available on the extent to which USAID used specific types 
of funding mechanisms within each of these categories, such as grants 
management contracts, umbrella grants, and funding of unsolicited 
proposals. However, data on USAID's use of funding agreements indicate 
that the agency favors mechanisms that delegate day-to-day management 
control to the nongovernmental organizations implementing them. As 
shown in figure 4, in fiscal year 2000 USAID obligated $2.6 billion to 
fund grants and cooperative agreements—which inherently limit the 
agency's decision-making authority. This is about two-thirds of 
USAID's $4 billion in total obligations to nongovernmental 
organizations for that year and nearly twice as much as the $1.4 
billion obligated for contracts, which USAID may have more substantial 
involvement in implementing. 

Figure 4: Obligations to Nongovernmental Organizations During Fiscal 
Year 2000, by Type of Agreement: 

[Refer to PDF for image: pie-chart] 

Cooperative agreements: $1.6 billion: 40%; 
Contracts: $1.4 billion: 35%; 
Grants: $1 billion: 25%. 
Total: $4 billion. 

Note: Includes obligations from prior years' obligating authorities 
made during the period October 1, 1999, to September 30, 2000. 

Source: GAO analysis of USAID procurement data. 

[End of figure] 

Furthermore, we could find little evaluative information at USAID to 
judge the effectiveness of the different NGO funding mechanisms. We 
were unable to identify any USAID studies of the effectiveness of 
various categories of funding mechanisms. USAID recently completed a 
study of lessons learned from its experience establishing and managing 
endowments. However, this study did not analyze the developmental 
objectives of USAID's endowments or evaluate their impact. USAID 
confirmed that it does not systematically evaluate the relative 
effectiveness of their programs and approaches at the agency-wide 
level. However, USAID indicated that it conducts evaluations at the 
country level. 

Since USAID does not routinely collect data on the specific types of 
funding mechanisms it uses, it would have difficulty evaluating the 
relative effectiveness of the different mechanisms. For example, 
without basic information about where and when it has funded 
unsolicited grant proposals to strengthen democratic institutions in 
Eastern Europe, it would be difficult to compare that overall 
experience with its experience using standard contracts, or other 
types of funding mechanisms, in similar circumstances. Hence, it would 
be difficult for USAID managers to begin the process of determining 
which approach would be more likely to achieve the desired development 
impact. 

Similarities and Differences in	Approaches of USAID and Some Other 
Donors: 

USAID routinely uses many of the same approaches to providing 
international development assistance as the official and private donor 
organizations we visited. Like USAID, these donors use various types 
of grants and contracts with governmental and nongovernmental 
organizations, but they may emphasize certain funding mechanisms more 
than USAID does. Compared with most other donors, USAID's choice of 
funding mechanisms tends to be guided by a desire for programmatic and 
financial controls and competition. We identified a few donors that 
use NGOs in ways USAID has not yet tried on a significant scale.
	
Official Donors: 

Official donors we visited generally followed a standard grant and 
contract approach, similar to USAID's, providing assistance to both 
governmental and nongovernmental organizations. For example, the 
Canadian International Development Agency had an overall approach 
quite similar to USAID's, providing funding both for assistance 
activities that the agency identified and/or designed itself as well 
as for activities generated by nongovernmental organizations or 
foreign governments. In addition, like USAID's Office of Private and 
Voluntary Organizations, the Canadian International Development Agency 
has taken a special interest in developing the capacity of 
nongovernmental organizations and has created a specific unit to 
oversee programs run by NGOs. In South Africa, the United Kingdom used 
grants almost exclusively to fund programs implemented by 
nongovernmental organizations. 

Although USAID, like other official donors, provides grants to 
governments, some official donors we visited tended to favor this 
approach more than funding nongovernmental organizations directly. For 
example, two major official donors we visited in Nicaragua—Japan and 
Sweden—provided nearly all of their assistance for Hurricane Mitch 
relief to the government of Nicaragua, while USAID's assistance was 
channeled overwhelmingly through nongovernmental organizations. In 
this situation, where USAID had concerns about the integrity of the 
government's financial controls and competitive contracting systems, 
it preferred to provide goods and services directly through 
nongovernmental organizations. USAID also preferred to retain more 
substantial control over the types of programs that would be funded 
with its assistance. 

Private Donors: 

Private foundations we visited used a range of approaches for 
providing assistance, most of which were similar in nature to USAID's. 
Most foundations awarded grants to governmental and nongovernmental 
organizations that submitted proposals aligned with the foundations' 
strategic priorities. Some foundations also offered subsidized loans 
for development-related projects, "umbrella grant" funding to be 
subgranted to other organizations, and contributions to endowments and 
global funds. Like USAID, these organizations funded grants both for 
programs that they conceived themselves and for programs that were 
submitted independently by organizations seeking assistance funding. 

USAID, abiding by federal procurement regulations and its policy on 
competition, does not rely as heavily on unsolicited proposals as many 
of the private donors we visited. None of the private donor 
organizations we visited followed as formal a competitive process in 
grant making as USAID employs. In general, they relied on the 
professional judgment of their staff and preexisting relationships 
with other organizations to guide their choice of programs and aid 
recipients. In some cases, such practices would not be allowed under 
federal guidelines. Some donors sponsored competitions for grants 
among preselected applicants, but this was relatively rare. 
Furthermore, these organizations did not have as strict financial 
management oversight over their recipients as USAID does. Though most 
of the private foundations we visited performed some basic review of 
the managerial capacity of the organizations they funded and retained 
the right to audit them, the process was more informal than USAID's. 
Also, USAID makes frequent use of contracts and cooperative 
agreements, which these donors did not usually use, so as to maintain 
some degree of formal programmatic control even after funds have been 
awarded to implementing organizations. 

Alternative Donor Approaches Aim to Maximize NGO Involvement: 

Although USAID's operations encompassed most funding mechanisms used 
by other donors we visited, we identified a few approaches aimed at 
maximizing NGO involvement that were different from those generally 
taken by USAID. 

* The Open Society Institute, a charitable foundation based in New 
York and Budapest, Hungary, provides nearly all of its assistance to 
indigenous national foundations that it has chartered throughout the 
world. These foundations, whose staff and board of directors usually 
consist of local professionals, develop country assistance priorities 
and select programs and recipient organizations independently from the 
Open Society Institute. The Open Society Institute selects the board 
of directors for the foundations, approves the annual budget, and 
provides technical support. 

* The Canadian International Development Agency operates a special 
program with funding set aside each year solely for proposals 
conceived and submitted independently by nongovernmental 
organizations. This supplements funding the organizations may be 
awarded for other specific assistance activities conceived by 
geographic offices within the agency. Funds are allocated to Canadian 
commercial enterprises seeking to work on local infrastructure 
projects, faith-based organizations, volunteer groups, and other 
nongovernmental organizations. 

Conclusions: 

USAID marshals and coordinates the activities of a wide variety of 
organizations, mostly nongovernmental, to deliver foreign assistance 
throughout the world. In response to the diverse conditions in the 
countries and geographic regions where USAID provides assistance, the 
agency has a flexible array of funding mechanisms available, which 
allows it to participate as a development activity implementer to 
varying degrees, as it deems appropriate, while maintaining an 
emphasis on accountability and competition. 

Although we identified some of the potential advantages and 
disadvantages of USAID's different funding mechanisms, there is little 
information on the relative effectiveness of USAID's many approaches to 
providing assistance. USAID has conducted little evaluation of its 
experience using the various funding mechanisms and types of 
organizations to achieve its objectives around the world. Indeed some 
of the essential information USAID would need to conduct such 
evaluations—data on the types of implementing organizations, funding 
mechanisms used, and objectives in its various program areas and 
bureaus—are not complete and sufficiently detailed. With better data 
on these aspects of USAID's operations, USAID managers and 
congressional overseers would be better equipped to analyze whether 
USAID's mix of approaches takes full advantage of nongovernmental 
organizations to achieve the agency's objectives. As USAID takes steps 
to modernize its accounting system in the next few years, it has an 
opportunity to include the collection of this data into the design of 
this system. 

Recommendations for Executive Action: 

To help ensure that USAID makes effective use of nongovernmental 
organizations and funding mechanisms in carrying out its international 
development activities, we are recommending that USAID compile more 
reliable data on the extent to which the agency uses specific types of 
organizations and funding mechanisms so that further analysis of the 
effectiveness of USAID's assistance approaches may be conducted. 

Agency Comments: 

We received written comments from USAID. These comments are reprinted 
in appendix IV. In addition to their overall comments, USAID provided 
technical and editorial comments, which we have incorporated in the 
report as appropriate. 

USAID agreed with the findings and recommendation of our report and 
indicated that it has taken the agency's data shortfalls into account 
in its ongoing efforts to review and replace its business systems, so 
that funding and assistance approaches can be transparently tracked 
and reported in the future. According to USAID, the new systems will 
allow for the collection of data globally that will be more complete 
with a greater degree of accuracy, will give a clearer picture into 
the its various programs, and will allow managers to better measure 
program effectiveness. 

As arranged with your office, we plan no further distribution of this 
report for 30 days from the date of the report unless you publicly 
announce its contents earlier. At that time, we will send copies to 
appropriate congressional committees and to the administrator of 
USAID. We will also make copies available to other interested parties 
upon request. 

If you or your staff have any questions concerning this report, please 
call me at (202) 512-4128. Other GAO contacts and staff 
acknowledgments are listed in appendix V. 

Sincerely yours, 

Signed by: 

Jess T. Ford: 
Director, International Affairs and Trade: 

[End of section] 

Appendix I: Scope and Methodology: 

To prepare a profile of USAID's use of nongovernmental organizations 
to provide U.S. foreign aid, we conducted an extensive review of USAID 
financial databases and interviewed officials throughout USAID. We 
obtained and analyzed financial data from USAID's offices of 
procurement, budget, and private and voluntary organizations, as well 
as the office of the USAID inspector general and three overseas 
missions—Honduras, Nicaragua, and South Africa. We interviewed USAID 
officials responsible for compiling and maintaining these data in 
order to assess their reliability and limitations. We also interviewed 
USAID headquarters officials in all geographic bureaus, two functional 
bureaus, and the Management Bureau, and USAID officials in the three 
missions that we visited to obtain additional data, details, and 
examples pertaining to their particular experiences using 
nongovernmental organizations and other program implementers. 

To analyze the funding mechanisms USAID uses to employ nongovernmental 
organizations, we reviewed USAID program and procurement guidance and 
other relevant documents and interviewed USAID officials who were 
routinely involved in choosing funding mechanisms at headquarters and 
the three field missions we visited. In the course of our overseas 
fieldwork, we visited a variety of assistance activities and spoke to 
numerous program implementers, including representatives of 
nongovernmental organizations, private voluntary organizations, 
foreign governments, and for-profit organizations, about their 
relationship with USAID and their experiences with the various funding 
mechanisms. In Honduras and Nicaragua we focused our review on the 
Hurricane Mitch Reconstruction Program. We interviewed representatives 
of several nongovernmental organizations in Washington, D.C., as well, 
including an association of international development-related 
nongovernmental voluntary organizations. Due to the large number, 
variety, and dispersion of nongovernmental organizations, we did not 
visit an adequate number of organizations to generalize observations 
we made during these visits. However, these organizations provided 
useful detail, examples, and illustrations of information we obtained 
from USAID and other sources. To determine the extent to which USAID 
has evaluative information on its use of various funding mechanisms to 
assess the tradeoffs among them, we obtained and analyzed documents 
and data and interviewed relevant officials from USAID offices in 
headquarters and overseas missions we visited. We also conducted 
several literature searches using USAID's databases to identify 
studies and evaluations conducted by USAID or its contractors or 
partners relating to various funding mechanisms or types of partners. 
We met with officials from USAID's Center for Development Information 
and Evaluation to identify any other reports that we may not have 
found in our USAID literature searches. 

To compare USAID funding mechanisms with the approaches of other donor 
organization, we visited a sample of donors selected subjectively, 
primarily based on the size of the donors as well as geographic 
location and other criteria. We selected four of the largest private 
foundations involved in international development located in New York 
City, which included the Ford Foundation, the Rockefeller Foundation, 
the Carnegie Corporation, and the Open Society Institute. To obtain 
the perspective of other donor organizations operating with U.S. 
government funds, we visited the Asia Foundation and the National 
Science Foundation. Due to logistical constraints, we limited our 
review of official donors to bilateral donors that were operating in 
the countries that we visited. They included Canada, the United 
Kingdom, Japan, and Sweden. We were unable to schedule meetings with 
representatives of the European Union during our field visits, but we 
reviewed relevant information available through its Web sites and 
interviewed third-party sources regarding its foreign assistance 
operations. Our selection of donors was not intended to be exhaustive, 
but rather illustrative of the main trends in international donor 
operations as we were able to discern them based on our interviews 
with knowledgeable international development officials and other 
sources of information. We excluded multilateral donors in the scope 
of our review due to significant differences in the way they are 
organized and operate. 

We conducted our work between April 2001 and February 2002 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Major NGO Recipients of USAID Fiscal Year 2000 
Procurement Funds: 

Table 2: Top 10 NGO Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Name: Development Alternatives, Inc. 
Organization type: For-profit;
Total amount obligated: $160 million. 

Name: Catholic Relief Services; 
Organization type: Private voluntary organization; 
Total amount obligated: $138 million. 

Name: CARE; 
Organization type: Private voluntary organization; 
Total amount obligated: $137 million. 

Name: Barents Group, LLC. 
Organization type: For-profit;
Total amount obligated: $133 million. 

Name: Chemonics International, Inc. 
Organization type: For-profit;
Total amount obligated: $105 million. 

Name: Save the Children; 
Organization type: Private voluntary organization; 
Total amount obligated: $63 million. 

Name: World Vision; 
Organization type: Private voluntary organization; 
Total amount obligated: $57 million. 

Name: Hagler Bailly Services, Inc. 
Organization type: For-profit;
Total amount obligated: $51 million. 

Name: Johns Hopkins University; 
Organization type: University; 
Total amount obligated: $47 million. 

Name: Mercy Corps International; 
Organization type: Private voluntary organization; 
Total amount obligated: $43 million. 

Source: USAID procurement data. 

[End of table] 

Table 3: Top 10 For-Profit Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Name: Development Alternatives, Inc. 
Total obligations: $160 million. 

Name: Barents Group, LLC. 
Total obligations: $133 million. 

Name: Chemonics International, Inc. 
Total obligations: $105 million. 

Name: Hagler, Bailey Services, Inc.
Total obligations: $51 million. 

Name: ABT Associates, Inc. 
Total obligations: $38 million. 

Name: Deloitte Touche Tohmatsu; 
Total obligations: $37 million. 

Name: John Snow, Inc.
Total obligations: $36 million. 

Name: International Resource Group; 
Total obligations: $28 million. 

Name: Louis Berger International; 
Total obligations: $22 million. 

Name: PriceWaterhouseCoopers; 
Total obligations: $22 million. 

Source: USAID procurement data. 

[End of table] 

Table 4: Top 10 PVO Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Name: Catholic Relief Services; 
Total obligations: $138 million. 

Name: CARE; 
Total obligations: $137 million. 

Name: Save the Children; 
Total obligations: $63 million. 

Name: World Vision; 
Total obligations: $57 million. 

Name: Mercy Corps International; 
Total obligations: $43 million. 

Name: Cooperative Housing Foundation; 
Total obligations: $35 million. 

Name: Population Council; 
Total obligations: $29 million. 

Name: Winrock International; 
Total obligations: $25 million. 

Name: Population Services International; 
Total obligations: $25 million. 

Name: AVSC International; 
Total obligations: $22 million. 

Source: USAID procurement data. 

[End of table] 

Table 5: Top 10 University Recipients of USAID Procurement Funding 
Obligations in Fiscal Year 2000: 

Organization: Johns Hopkins University; 
Total obligations: $47 million. 

Organization: University of North Carolina, Chapel Hill; 
Total obligations: $25 million. 

Organization: Georgetown University; 
Total obligations: $16 million. 

Organization: University of Delaware; 
Total obligations: $6 million. 

Organization: State University of New York; 
Total obligations: $6 million. 

Organization: Harvard University; 
Total obligations: $5 million. 

Organization: Georgia State University; 
Total obligations: $5 million. 

Organization: American University in Beirut; 
Total obligations: $5 million. 

Organization: Michigan State University; 
Total obligations: $5 million. 

Organization: University of Wisconsin, Madison; 
Total obligations: $5 million. 

Source: USAID procurement data. 

[End of table] 

[End of section] 

Appendix III: Faith-Based Private Voluntary Organizations: 

As shown in figure 5, a significant number of faith-based 
organizations are eligible to implement USAID's development programs. 
Based on our review of self-reported information from 439 U.S. private 
voluntary organizations registered with USAID[Footnote 11] in fiscal 
year 2001, 26 percent, appeared to be faith-based.[Footnote 12] 

Figure 5: Faith-Based Versus Secular PV0s: 

[Refer to PDF for image: pie-chart] 

Secular organizations (293): 67%; 
Faith-based organizations (116): 26%; 
Unclear (30): 7%; 
Total: 439. 

Note: Includes only those registered with USAID. 

Source: Our analysis of USAID and PVO data. 

[End of figure] 

As shown in figure 6, these PVOs span a range of denominations, but 
are comprised primarily of Christian organizations. 

Figure 6: Breakdown of Faith-Based PVO's by Denomination: 

[Refer to PDF for image: pie-chart] 
					
Other Christian (72): 63%; 
Unclear (13): 11%; 
Catholic (10): 9%; 
Jewish (9): 7%; 
Lutheran (4): 3%; 
Muslim (4): 3%; 
Methodist (2): 2%; 
Other (2): 2%; 
Total: 116. 

Note: Includes only those registered with USAID. 

Source: Our analysis of USAID and PVO data. 

[End of figure] 

[End of section] 

Appendix IV: Comments from the U.S. Agency for International 
Development: 

United States Agency For International Development
1300 Pennsylvania Avenue, NW: 
Washington, D.C. 20523: 
	
April 5, 2002: 

Mr. Jess T. Ford: 
Director: 
International Affairs and Trade: 
U.S. General Accounting Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Ford: 

I am pleased to provide the U.S. Agency for International 
Development's (USAID) formal response on the draft GAO report entitled 
"Foreign Assistance: USAID Relies on Nongovernmental Organizations, 
But Better Data Needed to Evaluate Approaches." Please note that 
technical edits to the report are enclosed separately. 

While we are in general agreement with the results of the GAO report, 
please note that in May of 2001, the new USAID Administrator 
acknowledged that the Agency's data was incomplete due to aging Agency 
business systems. The Administrator's agenda to turn USAID into a 
first rate 21st century development agency has taken these shortfalls 
into account. He has launched an aggressive effort to review and 
replace the Agency's business systems in five management areas: 
Procurement, Financial Management, Human Resources, Information 
Resources Management and Administrative Services. A new automated 
financial management system has been implemented in Washington and 
should be rolled out to the field soon. A new automated procurement 
system is next on the horizon. The implementation of these new systems 
and the streamlining of Agency business processes will allow for the 
collection of more complete data globally, with a greater degree of 
accuracy. 

We realize that detailed and accurate data will give a clearer view 
into the various USAID programs and allow managers to better measure 
program effectiveness. The stage is set and the Agency is moving in 
that direction. 

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: 

John Marshall: 
Assistant Administrator: 
Bureau for Management: 

Enclosure: A/S. 

[End of section] 

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Thomas Melito (202) 512-9601: 
James Michels (202) 512-5756: 

Acknowledgments: 

In addition to those named above, Katherine Brentzel, Janey Cohen, 
Martin De Alteriis, Kathryn Hartsburg, Lawrence Suda, and La Verne 
Tharpes made key contributions to this report. 

[End of section] 

Footnotes: 

[1] These areas include (1) approval of work plans, (2) designation of 
key positions and approval of key personnel, and (3) approval of 
monitoring and evaluation plans. 

[2] Chapter 304 of USAID's automated directive system, based on the 
authority provided by the Foreign Assistance Act of 1961, sections 621 
and 634(b); the Federal Grant and Cooperative Agreement Act of 1977; 
and OMB guidance. 

[3] The Competition in Contracting Act of 1984, P.L. 98-369 as 
amended, and the Federal Agreements and Cooperative Agreements Act of 
1977, 31 U.S.C. 6301 et seq. 

[4] These are funds obligated between October 1, 1999, and September 
30, 2000, from fiscal year 2000 and prior years' obligating authority. 

[5] In fiscal year 2000, USAID obligated cash transfers to the 
governments of Albania, Bosnia-Herzegovina, Bulgaria, Egypt, Israel, 
Jordan, Macedonia, Montenegro, Romania, and West Bank/Gaza. 

[6] The commodity import program is the method by which USAID finances 
the foreign exchange costs of procuring and shipping eligible 
commodities to recipient countries. 

[7] Beginning in October 2000, legislation has required that funding 
to PVOs be at least equivalent to the level of funding provided in 
fiscal year 1995, which was about 15 percent of USAID's program budget. 

[8] As of November 2001, the Global Bureau and the Bureau of 
Humanitarian Response have been reorganized into the Bureau for 
Democracy, Conflict and Humanitarian Assistance, the Bureau for 
Economic Growth, Agriculture and Trade, and the Bureau for Global 
Health. 

[9] USAID units issue Annual Program Statements to disseminate 
information to prospective program implementers about the agency's 
strategy in a particular field and geographic area so that they may 
develop and submit applications for USAID funding. An Annual Program 
Statement describes the types of activities for which applications 
will be considered and the process and criteria for evaluating 
applications. 

[10] USAID describes the Global Development Alliance as it's "new 
business model," and the "First Pillar of USAID's reorganization and 
reform strategy." Through the formation of strategic partnerships with 
private sector actors involved in international development, including 
NGOs, PVOs, cooperatives, foundations, corporations, the higher 
education community, and individuals, USAID seeks to leverage 
significant resources, expertise, creative approaches, and new 
technologies to address development issues. 

[11] It is USAID's policy that none of the funds appropriated under 
the U.S. Foreign Assistance Act may be made available to any PVO that 
is not registered with USAID. Disaster assistance funding and funding 
through subgrants or contracts are not subject to this requirement. 

[12] We defined a PVO as "faith-based" if its websites, mission 
statements, objectives, or priorities directly mentioned an 
affiliation with a religious organization or referenced God, Allah, 
another deity, prayer, faith, or other overtly religious terms. We 
concluded that having been founded by a religious person (priest, 
rabbi, nun, etc.) did not necessarily determine whether an 
organization was currently faith based. Where possible, the religious 
denomination was identified from the same information. Where it was 
unclear whether an organization was secular or faith-based and to 
which denomination it belonged, we contacted the organization for 
clarification, if possible. If no clarification was received, the 
organized was classified as "unclear." 

[End of section] 

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