Foreign Assistance: Non-Emergency Food Aid Provided Through Private Voluntary Organizations

Published by the Government Accountability Office on 1990-07-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United   States   General   Accounting   Office
                   Report to Congressional Requesters

July 1990
                   Non-Emergency Food
                   Aid Provided Through
                   Private Voluntary

 GAO/NSLAD-90479                                                      *
                       United States
GAO                    General Accounting  Office
                       Washington, D.C. 20548

                       National Security and
                       International Affairs Division


                       July 24, 1990

                       The Honorable E (Kika) de la Garza
                       Chairman, Committee on Agriculture
                       House of Representatives

                       The Honorable Dante B. Fascell
                       Chairman, Committee on Foreign Affairs
                       House of Representatives

                       The Honorable Patrick J. Leahy
                       Chairman, Committee on Agriculture,
                   -     Nutrition and Forestry
                       United States Senate

                       This report responds to your requests that we review non-emergency
                       food aid programs sponsored by private voluntary organizations (PVOS)
                       and cooperatives,l under title II of Public Law 480. You were concerned
                       about the recent termination of several Pvo-sponsored projects in Sub-
                       Saharan Africa. You asked us to determine whether (1) PVOSare less
                       willing than in the past to sponsor non-emergency projects, particularly
                       in Africa, and (2) PVOSencounter problems implementing non-emergency
                       food aid projects that affect their willingness to continue to sponsor title
                       II projects, and could the problems be addressed by legislative or admin-
                       istrative action. In addition, we reviewed U.S. government audits of food
                       aid projects sponsored by PVOSand cooperatives to determine whether
                       the financial management systems of these organizations are adequate
                       to account for food aid commodities donated by the U.S. government.
                       Appendix I provides a more detailed discussion of the non-emergency
                       food aid program.

                       We found that PVOSand cooperatives remain willing to sponsor non-
Results in Brief       emergency food aid programs using U.S. commodities, but they do not
                       have plans to expand their participation in the next 5 years. We also
                       found that PVOShave requested less food for their non-emergency pro-
                       grams in Africa and they are choosing to sponsor different types of food
                       aid projects.

                       ‘A cooperative
                                    is a privatesectororganization,
                                                                 ownedandcontrolledby its members,whoshareits
                       servicesandprofits.It providesbusiness
                                                            servicesandoutreachin cooperative
                                                                                                      for Its

                       Page1                                        GAO/NSlAD-90479

                             food aid projects. The principal sponsors have been Catholic Relief Ser-
                             vices (CRS)and Cooperative for American Relief Everywhere (UKE),
                             which together distributed about 86 percent, or about 330,000 metric
                             tons each, of the non-emergency commodities given to PVOSin 1989.
                             Sponsors usually work in a country through local partners, SUG: as local
                             pvos or national ministries, to implement projects.

                             Food donated under title II consists of bulk grains; bagged commodities,
                             such as lentils and beans; and processed foods, such as cornmeal, soy-
                             fortified bulgur, and vegetable oil. These commodities can be distributed
                             to targeted individuals or sold to generate funds for approved purposes.

                             Food aid sponsors have typically distributed title II commodities
                             through the following types of projects.

                         l Maternal and child health projects that provide supplementary food to
                           children and pregnant and lacating women to ensure an adequate diet
                           and improve nutritional status.
                         . Food-for-work projects that provide take-home rations or on-site meals
                           to unemployed or underemployed individuals or communities who par-
                           ticipate in community construction projects, such as building schools,
                           roads, irrigation systems, or improving land through reforestation or
                         l School feeding programs that generally provide meals to the poorest pri-
                           mary schools to improve the health, learning capability, attendance, and
                           nutritional status of students. Meals are also provided to adults who
                           attend training courses.

                             AID administers title II activities, establishes the regulations governing,
                             the program, and monitors how sponsors implement projects. The
                             Department of Agriculture determines the types and quantities of com-
                             modities available for title II programs and procures the commodities
                             for delivery to program sponsors.

                             We found that PVOScontinue to have a strong commitment to the non-
PVOs Not                     emergency, title II program and are not withdrawing from it. World-
Withdrawing, but Title       wide, the volume of food aid provided through non-emergency, PVO-
II Projects Are              sponsored title II project; in 1989 was about the same as provided in
                             1986. PVOShave requested the Congress to set aside more food for their
Changing                     projects in the next 6 years. However, we found that they do not have
                             specific plans for using more food during this period.

                             Page3                                    GAO,NSIAWW-179

                      During our review, PVOofficials told us that the United States overregu-
AID Works With PVOs   lated the title II program, and that regulations, which had not been
to Revise Title II    revised since 1979, were outdated and made non-emergency food aid
Regulations           projects unnecessarily difficult to manage. In December 1988, AID pub-
                      lished a proposed revision of its regulations for review and comment
                      and received numerous recommendations from PVOSfor additional
                      changes. AID worked with Pvo representatives and incorporated many of
                      their recommendations into new regulations, which were issued in June
                       1990. AID officials said that changes were made for clarity and to
                      account for inflation, provide additional operational flexibility, and
                      streamline some reporting requirements. However, they stated that the
                      revised regulations continue to focus on the food aid sponsor’s responsi-
                      bilities for commodity control, as well as program effectiveness, in order
                      to address the accountability problems identified in AID Inspector Gen-
                      eral reports. We did not evaluate the new regulations.

                      Through its audits of food aid projects, AID’s Inspector General has con-
Audits Disclose       eluded that PVOSgenerally lack adequate management control systems to
Control Weaknesses    account for commodities and the funds generated from the sale of com-
                      modities, and that these projects are vulnerable to fraud, waste, and
                      abuse. We also found, during our field work in Africa, examples of the
                      difficulties PVOSface in trying to ensure that title II commodities are
                      accounted for and used as intended.

                      The Inspector General attributed these weaknesses, in part, to financial
                      constraints that precluded PVOSfrom spending adequate funds on finan-
                      cial management. The Inspector General suggested that PVDSshould be
                      required to use a portion of the local currencies they generate from sales
                      of title II commodities to improve their financial management systems.
                      AID officials agree that this suggestion would be useful, but had no spe-
                      cific plans for implementing it.

                      To help PVOSresolve common food aid management problems, AID pro-
                      vided a $500,000 grant to a major PVOfood aid sponsor to support a
                      consortium of PVOfood aid sponsors to identify common implementation
                      problems and seek mutually acceptable solutions. The group held its
                      first workshop in January 1990 and decided to focus initially on
                      “accountability issues.”

                      To make food aid projects less vulnerable to fraud, waste, and abuse, we
Recommendation        recommend that the AID Administrator consider the adequacy of food

                       Page6                                  GAO/NSIAD.9@179

appropriate. However. in accordance with your wishes, we did not
obtain written comments on a draft of this report.

Copies of this report are being provided to the Secretary of Agriculture;
the Administrator of the Agency for International Development; appro-
priate congressional committees; the Director of the Office of Manage-
ment and Budget, and other interested parties. Copies will be made
available to others upon request.

This report was prepared under the direction of Harold J. Johnson,
Director, Foreign Economic Assistance Issues. He can be reached on
(202) 2755790, if you or your staff have any questions. Other major
contributors are listed in appendix II.

Frank C. Conahan
Assistant Comptroller General

Page7                                  GAO/NSIALHC-179
Page9   GAO/NSL4B90-179
                                            Non-EmergencyFoodAid Programs
                                            Sponsoredby PVOs

                                            or a development project that does not include a feeding component);
                                            and (3) AID’S willingness to make its food aid more attractive to PVOSby
                                            imposing fewer conditions and reporting requirements. AID officials told
                                            us that, although its regulations were recently revised for clarity, and to
                                            (1) account for inflation, (2) revise some reporting requirements, and
                                            (3) provide more flexibility to PVOS,title II regulations continue to focus
                                            on commodity control and program effectiveness to ensure that US.
                                            assistance is used for intended purposes.

                                            Food aid experts predict increasing food aid needs in Africa during the
Food Aid Needs in                           1990s. However, the volume of US. non-emergency food aid requested
Africa Increasing, but                      b y PVOSand cooperatives for projects in Africa decreased each year,
PVOs Distributing                           between 1986 and 1989. Furthermore, less food was distributed through
                                            traditional feeding programs targeted to needy children and pregnant
Less Food                                   and lactating women, and more food was sold to generate funds to pay
                                            project costs.

PVOs Requested Less Food                    The National Research Council’s panel of food aid experts warned, at
Aid for Projects in Africa                  their October 1988 meeting, that during the 1990s

                                            “Africa will continue to be the important focus of concern for food aid-and the
                                            region of greatest uncertainty-because of continuing conflict, locust plagues.
                                            cycles of drought and flood, and low economic growth combined with high rates of
                                            population growth.”

                                            Rather than increasing food aid to meet these predicted needs, recent
                                            distribution levels suggest a different trend is developing. AID statistics
                                            show that, rather than increasing, the volume of food requested by PVOS
                                            for non-emergency projects in Africa has decreased each year since
                                            fiscal year 1986. Table I.1 shows that PVOSreceived about 10 percent
                                            less food aid for these projects in fiscal year 1989 than in fiscal year

Table 1.1: Non-Emergency,   Title II Food
Aid Received by PVOs and                    In Metric Tons
Cooperatives,   by Region, Fiscal Years
1988-89.                                    Region                              1988          1987         1988          1989
                                            -~                                126,995       116,603      116,370       114,819
                                            Asia/NearEast                     477,285       401,178      513,490       456,588
                                            Latin Amenca                      147,290       166,477      163,719       198,945
                                            Total                            751,570       884,258       793,579      770,352
                                            Source. AID

                                            Page11                                      GAO/NSlAEMO-179
                             Non-EmergencyFoodAid Programs
                             Sponsoredby PVOa

                             for feasibility studies. However, new projects of other PVOShave been
                             mostly food-for-work or development projects, rather than maternal and
                             child health or school feeding projects. The shift from maternal and
                             child health projects in Africa reduced the estimated number of individ-
                             uals participating in those projects from about 1.8 million to about

                             AID commissioned a study of maternal and child health projects, in
                             response to the declining number of these projects, to review their role
                             and effectiveness and to suggest changes to improve them. Based on an
                             analysis of evaluations of maternal and child health projects and inter-
                             views with PVOand other food aid officials, the study identified the fol-
                             lowing possible reasons why PVOSmay be less willing to sponsor this
                             type of project than in the past.

                         . PVOSand host governments now emphasize community-based develop-
                           ment projects rather than charitable transfers of food that do not
                           address, and may delay, long-term solutions.
                         l The high costs of implementing effective maternal and child health
                           projects are not met by donors or host governments.
                         . Local organizations have limited technical, managerial, and operational
                           abilities to implement effective health and education projects.
                         . Most evaluations of maternal and child health projects have been incon-
                           clusive or negative, giving PVOand host government officials the percep-
                           tion that these projects are ineffective in improving nutritional status,

More Food Aid Was Sold       PVOSare permitted to sell all or a portion of the title II commodities they
                             receive from the United States to generate local currencies to support
                             approved projects. In fiscal year 1990, about 32 percent of the value.of
                             food aid shipped to PVOSfor their African programs will be sold,
                             whereas in fiscal year 1987, about 14 percent was sold. According to AID
                             and PVOofficials, factors that affect the level of sales in Africa include

                         l weak transportation, health, and education infrastructures that make
                           food distribution projects difficult, expensive, and less attractive to
                           implement than projects without feeding components;
                         . the use of sales proceeds to buy local products can reduce inland trans-
                           portation and storage costs, and encourage local agricultural production;
                         . PVOS’need for funds for the operational costs of feeding projects because
                           government and other local support for health and nutrition programs
                           has been limited; and

                             Page13                                  GAO/NSlAIWO-179
                             Non-EmergencyFoodAid Programs
                             Sponsoredby PVOs

                             where and how much food was sold, and how PVOSused the local curren-
                             cies generated by these sales. These reports are due by February 16 of
                             each succeeding year. The report for fiscal year 1987 showed that most
                             sales proceeds were used to support feeding programs. Because similar
                             reports had not been prepared for fiscal years 1988 or 1989, we were
                             unable to determine the extent to which local currencies were used to
                             support feeding programs or other authorized purposes in those years.
                             AID officials told us that they were preparing a report on fiscal year
                             1989 sales that would be issued shortly and would include some infor-
                             mation on 1988 sales. They explained that AID overseas missions had not
                             submitted sufficient information on sales activities to permit the prepa-
                             ration of a full report for 1988.

AID Provides Some Grants     AID provides dollar grants to PVOSto help support food aid projects. The
                             current program is designed primarily to provide grants to help PVOS
to Food Aid Sponsors         enhance the development impact of their projects, although funds can
                             also be provided for logistical costs. The total amount of funding avail-
                             able depends on other AID development priorities, but has increased
                             somewhat in recent years, and has ranged from $5 to $7 million annu-
                             ally. However, PVOofficials told us that they will need significantly more
                             dollars from AID or other sources in the future to (1) improve commodity
                             and fund control systems and (‘2) expand food aid programs in Africa.

PVOs Seek Legislation   to   Because the Coalition for Food Aid believed that substantial increases in
                             AID’s budget for grants to food aid sponsors seemed unlikely, it asked
Ensure Reliable Grant        the Congress to provide an additional source of dollar grants for PVOS.It
Funding                      recommended that the Congress amend Public Law 480 to provide that
                             not less than 2 percent of the title II budget be made available to PVOSto
                             “assist them in meeting the requirements of this title, expanding and
                             establishing new programs under this title, and meeting administrative,
                             management, personnel, and internal transportation and distribution
                             costs” for carrying out title II programs. Currently, none of the title II
                             budget is used for these purposes.

                             The Coalition’s request was developed with limited analysis of the
                             unfunded costs of administering food aid projects. The Coalition told us
                             that it reviewed the grant applications submitted to AID in early 1989 by
                             food aid sponsors. The Coalition found that these multi-year requests
                             averaged about $12 million annually, which it estimated was about 2
                             percent of the total title II budget for that year. We do not believe that
                             the Coalition adequately supported its request that PVOSbe given grants

                              Page15                                GAO/NSL4D90.179
                            Apwvilx I
                            Non-EmergencyFoodAid Programs
                            Sponsoredby PVOs

Regulations Require Full    AID’S regulations hold PVOSresponsible for ensuring that title II commod-
                            ities and program funds received from the US. government and distrib-
Accountability and Impose   uted to their partners in recipient countries are used in accordance with
Financial Penalties for     regulations established by AID, and an operating plan approved by the
Noncompliance               U.S. government. In accordance with these regulations, food aid spon-
                            sors are responsible for providing adequate supervisory personnel to
                            (1) make internal reviews, warehouse inspections, inventories, and end-
                            use checks and (2) review records maintained by their local partners to
                            document commodity transactions.

                            A PVOmust refund the value of any commodities, monetary pkoceeds, or
                            program income that were used for unapproved purposes, or if the PVO
                            was responsible for their loss, damage, or misuse. Program sponsors are
                            relieved of liability, if AID determines that the loss, damage, or misuse
                            could not have been prevented by proper exercise of the sponsor’s
                            responsibilities. However, if the loss, damage, or misuse was cause by a
                            third party, the sponsor will be held financially liable unless it pursues
                            reasonable collection action against the liable party for all claims
                            exceeding $500.

Audits Show Need for        Audits by AID’S Office of the Inspector General have shown that food aid
                            projects are subject to fraud, waste, and abuse, partly because PVOSlack
Improved Controls and       good financial management and internal control systems. The Inspector
Oversight                   General concluded in a 1986 review of its past audit reports that PVOS
                            generally lacked adequate control systems to account for commodities
                            and funds generated from project activities. Recent Inspector General
                            reports indicate that some PVOSand their local partners still have inade-
                            quate control systems and can neither account for large quantities of
                            commodities nor prove that commodities were delivered to the intended
                            beneficiaries. In addition, the Inspector General continues to find
                            instances, of varying significance, of fraud, waste, and misuse of com-
                            modities in Pvo-sponsored programs.

                            We reviewed 20 Inspector General audit reports of PVOfood aid projects
                            issued after 1986. Of the 20 audits, 17 audits found commodity control
                            deficiencies, 7 found fund control deficiencies, 10 found noncompliance
                            with loss claims procedures, 10 found noncompliance with commodity
                            destruction procedures, 8 found noncompliance with reporting require-
                            ments, and 13 found inadequate targeting of beneficiaries.

                            Internal control weaknesses allowed significant fraud or misuse of com-
                            modities to go undetected. Recent audits of a major program sponsored

                            Page17                                 GAO/NSL4D9O-179
                          Non-EmergencyFoodAid Programs
                          Sponsoredby PVck

                          Because food aid programs are vulnerable to fraud, waste, and abuse,
                          the Inspector General has suggested that PVOsbe required to allocate a
                          percentage of local currencies generated by selling title II commodities to
                          strengthen their management capabilities. .41Dofficials agreed that this
                          would be useful.

Examples of Commodity     During our field work in Africa, we found examples of the difficulties
                          facing food aid sponsors in trying to control and account for all commod-
Control Problems          ities in widespread food aid projects. Among the problems we noted
Encountered by Food Aid   were inaccurate, unreliable reporting and improper distribution of com-
Sponsors                  modities by local staff at final distribution sites.

                          We interviewed staff of CRS and its local partners in Burkina Faso, Togo,
                          and Kenya and visited numerous distribution sites, including primary
                          schools, training schools, maternal and child health centers, and food-
                          for-work project sites. CRS’ partners in Burkina Faso and Togo were
                          largely host government agencies, but in Kenya, it worked through
                          Catholic Church diocesan and parish organizations.

                          In each country, local officials responsible for distributing food to
                          targeted beneficiaries told us that they had no difficulty in preparing
                          the monthly inventory and distribution status reports submitted to CRS.
                          However, we found that these reports were not necessarily accurate. For
                          example, a school teacher in Burkina Faso told us that he had falsified
                          reports he sent to CRSto show that commodities had been correctly dis-
                          tributed according to the 5-month distribution schedule designed for his
                          school. He had, in fact, stretched the rations over a longer portion of the
                           lo-month school year. Another teacher told us that his reports had not
                          disclosed that he had distributed title II commodities to an unauthorized
                          village youth group at the direction of village elders. When we observed
                          that some students were not receiving food at another school, we were
                          told by the new teacher that he withheld food from students who had
                          not yet paid their school fees, and distributed their share among the stu-
                          dents who had paid.

                          A CRSofficial in Togo said that although reports submitted by maternal
                          and child health project directors in Togo appeared perfectly balanced,
                          he believed that minor thefts occurred and were concealed. In Kenya, we
                          found that a center director calculated the amount of food distributed
                          by using a formula that would eventually cause the reports and the
                          center’s actual on-hand inventory to differ significantly.

                          Page19                                 GAO/NSIAD-90.179
                                         FoodAid Programs
                             Spcmoredby PVOa

                         l   Work with ND to prepare a consolidated statement on food program
                             costs for the Congress.

                             A group spokesman told us that the group hopes that by adopting rea-
                             sonable food management standards and identifying the actual costs of
                             implementing good control systems, donors will (1) provide additional
                             funds and develop greater confidence in the ability of PVOSto control
                             commodities and (2) focus their attention on different issues, such as
                             project effectiveness.

Coalition for Food Aid       The Coalition for Food Aid has asked the Congress to establish a food
                             aid regulatory review committee composed of representatives from the
Proposes Additional          Department of Agriculture, AID, and all title II food aid sponsors. This
Forum for PVO and AID        group would, therefore, include Pvos who are not part of the AID-spon-
Coordination                 sored consortium. The group’s first task would be to review and revise
                             AID'S regulations to ensure that (1) they reflect current law, (2) require-
                             ments and processes are streamlined, and (3) standards for accounta-
                             bility are realistic and appropriate for the conditions found in
                             developing countries, and can accommodate diverse food program objec-
                             tives The Coalition asked the Congress to set a deadline for convening
                             the group and completing the initial review process. In fiscal years 1992
                             through 1995, the group would meet biannually to review the effective-
                             ness of regulations and procedures governing Pvo-sponsored title II

                             AID believes that adequate avenues for collaboration already exist and
                             that AID and PVOShave demonstrated the ability to work together
                             without the review committee suggested by the Coalition. We did not
                             fully evaluate how the proposed review committee would differ from
                             the food aid consortium currently sponsored by AID, although it would
                             have more members. However, we note that the consortium’s eight mem-
                             bers include the largest PVOfood aid sponsors, which handled more than
                             90 percent of all non-emergency title II commodities in fiscal year 1989.
                             In view of AID's sponsorship of the consortium and its ability to work
                             with PVOSand cooperatives, as demonstrated by its recent collaboration
                             with these organizations to revise title II regulations, it appears that AID
                             may be correct in its belief that adequate avenues for coordination
                             already exist and that there is no need to establish another group.

                             Page21                                  GAO/NSIAD99.179
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Appendix II                                                                                 -
Major Contributors to This Report

                        Donald L. Patton, Assistant Director, Foreign Economic Assistance
National Security and     Issues, (202) 275-5790
International Affairs   Dianne L. Rawl, Senior Evaluator

(4721913)               Page22                               GAO/NSIAD-SS-179
                       Non-EmergencyFoodAid Pmgram
                       Sponsoredby PvOs

                       cas headquarter officials told us that reporting discrepancies by their
                       local partners do not necessarily reflect fraud on the part of their
                       partners. They said the discrepancies are generally unintentional or
                       insignificant. In addition, they said that staff of some of their local part-
                       ners adjust their inventory records to hide normal operating losses
                       simply to avoid the program’s loss claims procedures, which they find

AID Sponsors PVO       A recent AID grant may help PVOSresolve common accountability
                       problems. In an effort to improve the efficiency and effectiveness of
Consortium to Seek     food aid, AID awarded CAREa $500,000, Z-year grant to sponsor a five-
Solutions to Common    member consortium of PVOfood aid sponsors. The group later expanded
Problems               its membership to eight PVOfood aid sponsors. The group is expected to
                       identify supervisory, management, and food aid issues, and seek mutu-
                       ally acceptable solutions. The work will be accomplished, in part,
                       through workshops involving field and headquarters personnel.

                        The group’s first workshop was held in January 1990, and focused ini-
                        tially on “accountability issues,” particularly those pertaining to com-
                        modity control activities, such as port operations, warehouse
                        management, commodity tracking, and end-use monitoring. The group
                        will review the systems used by its members and other food aid spon-
                        sors, and identify features or standards that constitute good food aid
                        management practices. A report from its first workshop stated that

                        “accountability requirements are often unrealistic in the field context, costly to
                        administer, and counterproductive to program goals and objectives. The cost impli-
                        cations of meeting accountability requirements are often not recognized by the [food
                        aid sponsor], or the donor, resulting in inadequate accountability.”

                        The workshop report suggested that, among other effects, poor account-
                        ability strained sponsor and donor relationships and caused unwar-
                        ranted criticism of food aid. It also reported that donors do not provide
                        sufficient funds to food aid sponsors because they are unaware of the
                        actual costs of food programming and tend to overestimate the
                        resources of sponsors. The group decided to address these issues in the
                        following manner.

                      . Establish a common set of accountability standards and encourage their
                        adoption by sponsors and AID.
                      . Convince sponsors to document the actual costs of food programs and
                        the level of funds they can contribute.

                        Page20                                      GAO/NSIAD90.179
Non-EmergencyFoodAid Programs
Sponsoredby PvOa

by the CRSin India disclosed that CRS’local partners had falsified their
inventory records to conceal that (1) rations were generally about 15 to
20 percent smaller than authorized; (2) most commodity losses were not
reported to the sponsor but were recorded as distributed to recipients;
and (3) most attendance records were inaccurate and, in one example,
inflated by as much as 400 percent. The auditors determined that CRS
had not adequately monitored the activities of its partners and therefore
was unaware of the losses, misuse, and falsified records. The auditors
and CRSagreed that inaccurate and missing records did not necessarily
mean that commodities had been misused or that fraud had occurred.

AID began working with cRSto correct its management weaknesses. In
May 1990, at AID’S urging, CRSsubmitted a grant proposal to AID stating
that, beginning in July 1990, it would need U.S. dollar grant funding to
undertake management and programmatic improvements to correct
deficiencies noted during audits of its programs in India. CRSproposed
that AID provide a 3.5-year, $4.165 million grant to help it improve its
institutional capabilities and those of its local partners. Further, cas
stated that commodity sales might be a viable method of obtaining addi-
tional funding for the program in the future, but that it could take as
long as 3 years to negotiate sales agreements, obtain U.S. government
approvals, receive and sell the commodities, and distribute the proceeds.
In the interim, the program needed funds. At the end of our review, AID
headquarters and field officials were considering whether the proposal
adequately addresses the problems identified in the audit reports.

As a result of another Inspector General review, AID issued bills of col-
lection, totaling more than $1.6 million, to the Adventist Development
and Relief Agency for the unauthorized sale and misuse of title II
commodities. The Inspector General found that the country director for
the Adventist agency had used title II food to pay labor costs for the
construction of his residence and a tennis court. Other staff members
had also used donated food and funds for their personal gain.

AID’s Inspector General believes that, because PVOSare “financially          con-
strained,” they

“only provide the bare minimum to financial management. PVOsare more concerned
with providing needed services to needy people. Consequently, audits of the title II
program consistently find significant problems in the distribution and delivery of
these commodities.”

Page18                                     GAO/NSlADSO-179
                          Non-Eher@ncyFoodAid I%@ama
                          Sponwredby PVOs

                          equal to at least 2 percent of the title II budget. Neither AID nor the pvos
                          have collected data on actual and unfunded costs of food aid projects.
                          Although it seems reasonable that a stable source of dollar funding for
                          PVOSwould help make title II projects more effective, without empirical
                          evidence, we could not independently determine what amount would be

                          During our review, PVOofficials told us that the non-emergency title II
AID Worked With           program had been over-regulated by the U.S. government and that regu-
PVOs to Revise Title II   lations were outdated and made non-emergency food aid projects unnec-
Regulations               essarily difficult to manage.

                          Regulations governing the transfer of title II commodities to food aid
                          project sponsors are found in title 22, part 211, of the Code of Federal
                          Regulations, and are commonly called “AID Regulation 11 .I’ At the time
                          of our review, Regulation 11 had not been revised since 1979 and no
                          longer reflected current law or procedures. In December 1988, AID pub-
                          lished a proposed revision of these regulations in the Federal Register
                          for review and comment, and PVOSsubmitted numerous recommenda-
                          tions for additional changes. AID worked with PVOrepresentatives to
                          incorporate many of the recommendations into a final revision, which
                          was issued in early June 1990. We did not evaluate the new regulations,,
                          but AID believes that they address most of the concerns raised by PVOS.

                          Food aid sponsors are responsible for ensuring that title II commodities
Additional Funding        and program funds are used as intended. As one PVOofficial said during
and Collaboration May     a congressional hearing,
Help PVOs Improve
                          “The American people have a right to accountability when they pay the bills; the
Accountability            government has a responsibility to demand it and the beneficiaries and users of gov-
                          ernment goods and services should be able to reasonably expect that high standards
                          will be set and met.”

                          The AID Inspector General has found that PVOShave not always been
                          able to fulfill this responsibility, in part, because they lack funds to
                          improve their financial management systems. As a result, title II com-
                          modities have been wasted or misused. To help PVOSresolve food aid
                          management problems, AID has provided grant funding to support a con-
                          sortium of food aid sponsors to identify major issues and seek mutually
                          acceptable solutions.

                          Page16                                      GAO/NSL4MW179
                               Non-EmergencyFoodAid Programs
                               Sponsoredby PVOs

                           l   some more recent title II sponsors are not traditional food aid distribu-
                               tors, and primarily use title II commodities to generate local currencies
                               for development projects.

                               PVOSare responsible for ensuring that all costs of implementing title II
PVOs Seek Additional           programs are covered. They receive funds to implement these programs
and Reliable Funding           from private donations, host governments, voluntary contributions from
for Project Costs              project beneficiaries, and the U.S. government through cash grants and
                               sales of title II commodities. Although PVOSindicate continuing interest
                               in sponsoring non-emergency food aid programs, they told us that it has
                               become increasingly difficult to pay the high costs associated with food
                               distribution projects. We were told that the private donations of some
                               PVOShave declined, some host governments are less able or willing than
                               in the past to support food aid projects, and project costs have increased
                               as PVOSexpand their monitoring activities in response to increasing U.S.
                               emphasis on commodity control and accountability.

Commodity Sales Have Not       PVOScan obtain local currencies to pay overseas project costs by selling
Provided Funds for All         title II commodities. Public Law 480 was amended in December 1985 to
                               explicitly permit such sales by PVOSand established a minimum sales
Expenses                       level equal to 5 percent of the aggregate value of the commodities dis-
                               tributed under non-emergency programs each year. In December 1987,
                               the law was expanded to specifically include cooperatives and increase
                               the minimum sales level to 10 percent. The permissible uses of local cur-
                               rencies included support for income-generating projects, agricultural or
                               community development, health, and nutrition projects. AID guidance,
                               however, states that the U.S. government will give precedence to sales
                               proposals that support feeding programs.

                               Although commodity sales have been used successfully to generate local
                               currencies, they have not been practicable in all countries. PVOofficials
                               told us that convertible currency, such as U.S. dollars, is needed to pay
                               local costs in countries where commodity sales have not been practi-
                               cable, for example, when hyper-inflation would quickly erode the value
                               of local currencies generated from commodity sales. PVOSalso say that
                               some expenses, such as U.S. staff salaries, some vehicles, equipment,
                               and supplies, can only be paid with dollars.

                               Beginning in fiscal year 1987, legislation requires the President to
                               submit an annual report to the Congress outlining, among other things,

                               Page14                                  GAO/NSIAB9&179Non-Emergency
                                          Non-EmergencyFoodAid Programs
                                          Sponsoredby PVOs

                                          PVOSindicated that they are not unwilling to sponsor non-emergency
                                          food aid projects in Africa. However, they told us that long-standing
                                          problems, such as the lack of transportation, health, and education
                                          infrastructure; the need to develop new program models for Africa; and
                                          the lack of host government and donor funding for project expenses
                                          limit their ability to expand.

PVOs Distributed Less                     During fiscal years 1986-89, PVOSchanged the way they used title II
                                          commodities in Africa. In fiscal year 1989, PVOSrequested 72 percent
Food Through Feeding                      less food for traditional maternal and child health projects, 11 percent
Programs                                  less for school feeding projects, and 19 percent more for food-for-work
                                          projects than they did in fiscal year 1986. Significantly more food aid
                                          was requested for sale. Table I.2 shows the distribution of food aid
                                          requests, by project type, worldwide, and in Africa, in fiscal years 1986
                                          and 1989.

Table 1.2: Approved PVO and
Cooperative Food Aid Requests,   Fiscal   In metric tons                              ____           _--
Years1966and1969                                                                        Worldwide                              Africa
                                          Project Type                                 1966           1969                 1966          1969
                                          Maternal and child health
                                          -__--~~               ~--                 399,483       347,952                110,128       30,346
                                          School feeding                             133,158       100,885                15,798
                                                                                                                          ___--__      14,004
                                          Other child feedmg                          29,296        37,135                 3,104         1,964
                                          Food-for-work                             247,920       233,794                 29,122       34,605
                                          General relief                              17,894        45,331                 4,809         6,641
                                          Other                                       16,722        41,556                   745        10,146
                                                                                                                            __~~~ _ ~~~._
                                          Sales                                       26,996       124,455                   553       26,756
                                          Total                                     671,471       931 ,106              164,259       126,462
                                          Note These figures are based on planned and not actual dlstributlon levels As a result the annual
                                          totals do not match those in table I 1
                                          Source AID

                                          The decrease in food distributed through maternal and child health
                                          projects in Africa appears to be due, largely, to the termination or reduc-
                                          tion of CRSprojects in several Sub-Saharan countries between 1986 and
                                          1989. CRSofficials said that the terminations were caused by a variety of
                                          country-specific reasons, including changes in host government develop-
                                          ment priorities.

                                          According to AID and PVOofficials, AID became concerned over the
                                          declining volume of food requested for Africa and actively encouraged
                                          other PVOSto begin projects in Africa, and provided grants to some PVOS

                                          Page12                                               GAO/NSIADSQl79Non-Emergency
Appendix I

Non-EknergencyFood Aid Programs Sponsored’
by PVOs

                          Public Law 480 currently requires the U.S. government to provide a
                          minimum of 1.9 million metric tons of food each year through title II
                          programs. The law further requires that a “subminimum” of 1.425 mil-
                          lion metric tons of food will be distributed through PVOS,cooperatives,
                          and the World Food Program for non-emergency programs. The current
                          minimum and subminimum have been in effect since fiscal year 1987.

                          The Coalition for Food Aid, an organization representing U.S. PVOSand
PVOs Request More         cooperatives sponsoring food aid programs, has asked the Congress to
Food, but Plans for Its   gradually increase the annual minimum tonnage to 2.65 million metric
Use Are Uncertain         tons and the subminimum to 1.8 million metric tons by fiscal year 1995.
                          The Coalition based its request on National Research Council projections
                          of increased global needs for food assistance during the 1990~~and the
                          general intentions of the Coalition’s membership to expand their pro-
                          grams to help meet those needs. The Coalition did not contact the World
                          Food Program to ask for its plans when it estimated the new sub-
                          minimum requirements included in its proposal.

                          Based on interviews with Coalition and PVOofficials, we found that PVOS
                          do not have specific plans for using the increased volume of commodi-
                          ties requested by the Coalition. Several PVOofficials did not see the need
                          to increase the subminimum at the present time because it seems
                          unlikely that PVOSwill be able to use more food aid for non-emergency
                          programs in the near future.

                          PVOScited several factors that could limit their food aid requests in the
                          next few years. A CAREofficial, for example, told us that CAREmay
                          reduce the number of beneficiaries in some of its feeding programs, so
                          that it can increase the rations given to the remaining beneficiaries to
                          enhance nutritional impact. They said that this process might initially
                          result in a decrease in the amount of food aid requested. The official
                          also said that future expansion depends on additional U.S. dollar grants
                          for operational costs.

                          Officials of other PVOSalso told us that expansion of their food aid
                          projects depends on (1) receipt of additional funds for project costs;
                          (2) U.S. development priorities and willingness to approve the types of
                          programs that are proposed (e.g., a secondary school feeding program,

                          ‘FoodAid ProJections
                                             for theDecade of the 199Os, Reportof anAd HocPanelMeeting.October6 and
                          7, 1988,BoardonSaenceandTechnology    for InternationalDevelopment,
                                                                                           Officeof International

                          Page10                                        GAO/NSIAD90179Non-Emergency

Letter                                                                                    1

Appendix I                                                                               10
Non-Emergency Food      PVOs Request More Food, but Plans for Its Use Are
Aid Programs            Food Aid Needs in Africa Increasing, but PVOs                    11
Sponsored by PVOs            Distributing Less Food
                        PVOs Seek Additional and Reliable Funding for Project            14
                        AID Worked With PVOs to Revise Title II Regulations              16
                        Additional Funding and Collaboration May Help PVOs               16
                             Improve Accountability

Appendix II                                                                              22
Major Contributors to
This Report
Tables                  Table 1.1: Non-Emergency, Title II Food Aid Received by
                            PVOs and Cooperatives, by Region, Fiscal Years
                        Table 1.2: Approved PVO and Cooperative Food Aid                 12
                            Requests, Fiscal Years 1986 and 1989


                        AID       Agency for International Development
                        CARE      Cooperative for American Relief Everywhere
                        CRS       Catholic Relief Services
                        PVO       Private Voluntary Organization

                        Page8                                GAO/NSlABW179Non-Emergency

              aid sponsors’ financial and management systems when reviewing their
              requests to sell title II commodities to generate local currencies, and if
              such systems are inadequate, ensure that sufficient sales proceeds are
              set aside for improving those systems.

              To determine whether PVOSare leaving the title II program, we reviewed
Scopeand      AID statistical reports for fiscal years 1986 through 1990 and analyzed
Methodology   changes in the volume of non-emergency food aid requested by PVOS.We
              did not verify the accuracy of these statistics. We also asked officials of
              two organizations representing multiple food aid sponsors about the
              activities and future plans of their members.

              To identify the problems encountered by PVOSin implementing title II
              non-emergency programs, we asked officials of several PVOSsponsoring
              title II programs about their projects, funding, and control systems. We
              also interviewed officials of the (1) Coalition for Food Aid to obtain
              information on the legislative proposal it submitted to the Congress on
              behalf of food aid sponsors and (2) the food aid management consortium
              sponsored by AID about its efforts to identify problems encountered by
              PVOSand its plans to seek solutions for those problems. We also visited
              three countries in Sub-Saharan Africa, Burkina Faso, Togo, and Kenya,
              and interviewed AID, PVO,host government, and other local officials and
              observed food aid programs in operation. While in Africa, we also inter-
              viewed officials of PVOSnot sponsoring US. food aid programs to deter-
              mine why they were not participating. We pursued issues raised by PVO
              country directors in Africa with PVOheadquarters officials in the United
              States. We interviewed AID and Department of Agriculture officials to
              obtain their perspective on the problems and issues raised by PVOS.

              To identify implementation problems and internal control weaknesses,
              we reviewed evaluations and AID Inspector General reports of food aid
              projects. While in Togo and Kenya, we identified the control systems
              used by the primary PVOfood aid sponsor and its counterparts to
              account for commodities and funds; however, we did not test these sys-
              tems and cannot express an opinion on the accuracy of reports gener-
              ated from these systems.

              Our work was conducted between September 1989 and April 1990, and
              was performed in accordance with generally accepted government
              auditing standards. The views of responsible agency officials were
              sought during the course of our work and are incorporated where

              Page6                                   GAO/NSLAD90179

During 1986-89, PVOSchanged the way they used the food aid donated
by the United States. Less food was given away through feeding projects
targeted at mothers and children and more was given to individuals par-
ticipating in community development projects. More food was sold to
generate local currencies to support projects, with and without feeding

The reduction in food distributed through feeding projects was most
apparent in Sub-Saharan Africa and was due, in part, to (1) changing
opinions among PVOSand host governments about the effectiveness of
feeding projects compared to community-based development projects,
(2) the difficulties PVOSface in implementing feeding projects, caused by
poor transportation, health, and education infrastructure and inade-
quate funding, and (3) the termination of several large maternal and
child health projects. The increased volume of food being sold reflects
the PVOS’need to generate funds to support both feeding programs and
projects that do not use food.

PVOSsay that food aid projects are expensive to implement and they
need a reliable source of dollar grants to pay operating expenses, under-
take needed management improvements, and expand their programs,
particularly in Africa. They say that it has not been practicable for them
to sell title II commodities to generate local currencies in all countries
where they have food aid projects and need local currencies. In addition,
some program costs must be paid with dollars. Although PVOSreceive
dollar grants from AID, the amount available for such grants has
depended on AID development priorities. PVOShave asked the Congress
to amend food aid legislation to provide that not less than 2 percent of
the title II budget be given to them as cash grants to help pay program

We found that the PVOS’request was based on a limited analysis of the
unmet costs of administering food aid projects. Although a reliable
source of dollar grants to help PVOSpay the costs of food aid projects
may encourage PVOparticipation in the title II program and facilitate
expansion and management improvements, we believe that PVOShave
not adequately supported their need for grants equal to at least 2 per-
cent of the title II budget. Neither PVOSnor AID have analyzed the actual
costs of implementing food aid projects. However, a consortium of PVO
food aid sponsors, funded by AID, is proposing to develop such data to
help donors evaluate the need for funding to support food aid projects.

Page4                                  GAO/NSlAD99-179

             PVOSdo experience difficulties implementing food aid projects, which
             they attribute, in part, to inadequate funding. PVOSsaid their ability to
             expand their programs and undertake management improvements iden-
             tified by government auditors is contingent on the receipt of additional
             funds to pay the high costs of food aid projects. PVOShave asked the
             Congress to amend Public Law 480 to provide for a portion of the title II
             budget to be given to them as cash grants to support title II projects.
             However, neither PVOSnor the Agency for International Development
             (AID), which administers the title II program, has collected data on the
             additional amount of funding that may be needed. PVOSalso said that
             US. regulations governing the transfer of title II commodities made non-
             emergency projects unnecessarily difficult to manage. AID issued revised
             regulations in June 1990 and believes that they address most concerns
             raised by PVOS.We did not evaluate the regulations.

             U.S. government audits of non-emergency food aid projects indicate that
             these projects are vulnerable to fraud and misuse. The AID Inspector
             General has attributed this vulnerability, in part, to financial constraints
             that have precluded PVOSfrom spending adequate funds on their finan-
             cial and management systems. To address this problem, the Inspector
             General suggested that PVOSshould be required to use a portion of the
             local currencies they derive from selling title II commodities to improve
             their financial and management systems, if deemed necessary by AID.

             The United States provides food assistance to (1) combat hunger and
Background   malnutrition, (2) encourage economic development, (3) expand export
             markets for U.S. agricultural commodities, and (4) promote U.S. foreign
             policy goals. Food assistance is provided under several legislative
             authorities, but primarily under the Agricultural Trade Development
             and Assistance Act of 1954, as amended, commonly referred to as Public
             Law 480, which expires in December 1990. Title II of the act authorizes
             food donations to cooperating sponsors

             “to meet famine or other urgent or extraordinary relief requirements; to combat
             malnutrition, especially in children; to promote economic and community develop-
             ment in friendly developing areas; and for needy persons and nonprofit school lunch
             and preschool feeding programs outside the United States.”

             Non-emergency food aid is provided through the United Nations’ World
             Food Program, foreign governments, PVOS,and cooperatives. In fiscal
             year 1989, 13 PVOSand cooperatives, operating in 34 countries, received
             770,000 metric tons of food valued at $210 million, for non-emergency

             Page2                                      GAO/NSlAD99-179