Aid to Kenya: Accountability for Economic and Military Assistance Can Be Improved

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 As a result, AID has withdrawn earlier concurrence for the Kenyan government to withdraw local currency funds equal to $4.9 million until corrective actions are taken.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.

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.

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.

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.

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.

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.