GAO CENTRAL AMERICA Assistance to Promote Democracy and National Reconciliation in Nicaragua .-_-- __.__. __,-______ ““...-I --__.” .._,.“_---*.----1^---------- ..------ (~Ao/‘NSIAI)-!~o-d~1T, I -. .I .-.. ” _ ._ I _ _ .l.“l” I 11” ” ,” I.. ..“” “lll”ll”“,l-“-~----_-- -- - 1 1 -_-l-- .___- _.-. National Security and+ International AfTairs Division B-240163 September 24,199O The Honorable Patrick J. Leahy Chairman, Subcommittee on Foreign Operations Committee on Appropriations United States Senate The Honorable Christopher J. Dodd Chairman, Subcommittee on Western Hemisphere and PeaceCorps Affairs Committee on Foreign Relations United States Senate The Honorable David R. Obey Chairman, Subcommittee on Foreign Operations, Export Financing and Related Programs Committee on Appropriations Houseof Representatives The Honorable GeorgeW. Crockett, Jr. Chairman, Subcommittee on Western Hemisphere Affairs Committee on Foreign Affairs House of Representatives In responseto your request, we reviewed the Agency for International Development’s administration of $9 million to promote democracy and national reconciliation in Nicaragua, including assistancefor free and fair elections. These funds were appropriated under Public Law 101-119for the period October 1,1989, to February 28, 1990. We are sending copies of this report to other interested congressionalcommittees; the Administrator, Agency for International Development; the Secretary of State; and the Director, Office of Managementand Budget. Pleasecontact me at (202) 276-4128 if you or your staff have questions concerningthis report. Major contributors to this report are listed in appendix I. Joseph E. Kelley Director, Security and International Relations Issues Ekecutive Summary The Congresshas been concernedthat assistanceprovided to promote Purpose democracy and national reconciliation in Nicaragua be spent according to legislative intent. As a result, four congressionalsubcommitteesasked GAO to examine the Agency for International Development’s(AID) admin- istration of funds authorized for election support and monitoring in Nic- aragua. GAO'S objectives were to determine whether AID and its grantees had complied with applicable requirements and had established ade- quate accounting controls. Public Law 101-119(Oct. 21, 1989) authorized AID to spend up to $9 Background million to promote democracy and national reconciliation in Nicaragua, including assistancefor elections held in February 1990. The law required that up to $6 million be made available to internal groups and earmarked $1.06 million for three specific groups. The legislation required AID to use funds provided to internal groups in a manner consistent with the charter and operating procedures of the National Endowment for Democracy.The law also permitted contribu- tions to the Nicaraguan SupremeElectoral Council and imparted the senseof Congressthat such funds would be used only for technical elec- toral purposes. AID obligated $8.96 million, including $8.8 million in grants, to the Endowment, Center for Training and Electoral Promotion, Council of Freely-Elected Headsof Government, Center for Democracy,and Freedom House, and the remainder to cover managementand oversight expenses.The Endowment granted about $7 million to four U.S. organi- zations that supported activities of the National Opposition Union (the main opposition coalition), the Institute for Electoral Promotion and Training (a civic institute), the Nicaraguan Confederation of Labor Unity (an independent labor union), and Via Civica (a civic association). As of June 30,1990, AID, the Endowment, and their grantees had expended about $6.9 million. Any unobligated funds and obligated funds that remain unexpended after all program activities ceaseare to be returned to the U.S. Treasury. AID and Endowment grantees generally complied with applicable Results in Brief * requirements, except that the Institute for Electoral Promotion and Training paid someunauthorized salaries and campaign costs.The two U.S. organizations responsible for monitoring the Institute’s activities Page 2 GAO/NSIAD-90-246As&tame to Nicaragua Executive Summary recouped most of these payments. Granteesgenerally established ade- quate procedures and accounted for funds, but the Confederation of Labor Unity lacked certain controls and did not strictly adhere to AID requirements before expending funds. The National Opposition Union and the Institute for Electoral Promotion and Training did not receive funds or equipment until 3 weeks prior to the election becauseit took time to satisfy AID requirements and to obtain Nicaraguan government approvals; thus, they were unable to carry out someplanned preelection activities. The Center for Democracy was unable to obtain visas for most of its election day delegation, Via Civica did not obtain legal status until April 1990, and the Center for Training and Electoral Promotion was unable to obtain the Nicaraguan government’s approval for someeducational activities. As a result, these groups limited or cancelled someactivities. GAO's Analysis Compliance With Public Law 101-l 19 authorized funds for election support and moni- Requirements and toring. AID specified that these funds could not be used to pay campaign expensesor salaries of presidential and National Assembly candidates. Accountability for AID established accounting and audit requirements and arranged for Expenditures surveys of the National Opposition Union and other internal groups to assessaccounting controls and compliance with applicable laws. GAO found that most activities were conducted in accordancewith restrictions. However, the Institute for Electoral Promotion and Training paid $119,018, or 9.2 percent of its total outlays, for somequestionable salary, campaign, and undocumented expenses.As of July 1990, the two U.S. groups that monitored Institute activities had recouped $92,350 and were taking steps to recoup the remainder. GAO and private auditors found that grantees had generally established adequate procedures and accountedfor expenditures. However, the Confederation of Labor Unity did not fully implement accounting proce- dures and expended funds before completing registration of its grant with the Nicaraguan government. Further, Via Civica and the Confeder- ation did not maintain separate accounts. Page 3 GAO/NSIAD-SO-245 Assistance to Nicaragua Executive Summary Implementation of AID and Endowment grantees generally implemented planned activities, Activities but somegrantees had difficulties. The National Opposition Union did not receive equipment and the Institute for Electoral Promotion and Training did not receive funds until 3 weeks before the election because it took time to establish accounting procedures and to obtain the Nicara- guan government’s approval to use funds and equipment. Thus, these groups were unable to fully verify voter registration lists or air some advertisements. However, they were able to conduct poll-watcher training, which they believed contributed significantly to ensuring free and fair elections. The Center for Democracy carried out preelection activities but was unable to obtain visas for most election observers and thus had to limit the monitoring of voting. Via Civica did not obtain legal status until April 1990 and thus could not expend funds before the election. The Center for Training and Electoral Promotion assistedthe Nicaraguan SupremeElectoral Council, as planned, but was unable to obtain approval from the Nicaraguan government to distribute someeduca- tional leaflets or to produce a training videotape and two television spots. GAO makes no recommendationsin this report. Recommendations In their oral commentson a draft of this report, AID officials generally Agency Comments agreedwith our findings and conclusionsand suggestedminor modifica- tions, which GAO has incorporated in the report where appropriate. Page 4 GAO/NSL4IMO-M Adstance to Nicaragua Page 5 GAO/NSLAD.~U Aaaiatanceto Nicaragua contents Executive Summary 2 Chapter 1 8 Introduction Program Implementation Activities and Expenditures 9 9 Objectives,Scope,and Methodology 13 Chapter 2 16 Implementation IPCE and UN0 Experienced Delays 16 Difficulties for Observer and Other Groups 21 Problems Limited SomeActivities Chapter 3 24 Compliance With Legislative Requirements and Other Restrictions GranteesConducted Authorized Activities 24 26 Requirements and Accountability of Funds 28 Accountability of Funds Appendix Appendix I: Major Contributors to This Report 32 Tables Table 1.1: Public Law 101-119Obligations 10 Table 1.2: Public Law 101-119Expenditures 13 Figures Figure 1.1: Public Law 101-l 19 Funding Arrangements 12 Figure 2.1: IPCE Billboard in Managua, Nicaragua With 20 Instructions on Voting Procedures Figure 3.1: SupremeElectoral Council Advertisement 27 Promoting Voter Participation Abbreviations AID Agency for International Development C4PEL Center for Electoral Training and Promotion GAO General Accounting Office IPCE Institute for Electoral Training and Promotion UN0 National Opposition Union Page6 GAO/NSIADBO-245Assistance to Nicaragua Y Page 7 Chapter 1 Introduction In February 1989, the presidents of five Central American countries signed an agreementcalling for, among other things, free elections in Nicaragua. The Nicaraguan government agreedto hold elections on Feb- ruary 26, 1990, for the presidency, the National Assembly, and munic- ipal councils and to invite observers from the United Nations and the Organization of American States. In October 1989, the Nicaraguan SupremeElectoral Council registered about 1.76 million voters in Nica- ragua’s nine regions. The National Opposition Union (UNO), a 16party coalition formed in September 1989, was the primary opposition to the governing party- the Sandinista Front for National Liberation. During the preelection period, the UN0 and the Sandinista party conducted various activities, including civic education campaigns,political rallies, and poll-watcher training. On election day, SupremeElectoral Council officials; poll watchers from UNO, the Sandinista Front, and other political parties; and election observersmonitored voting procedures and ballot counting. The UN0 presidential candidate, Violeta Chamorro, won 64 percent of the vote and was inaugurated on April 26,199O. Public Law 101-119,enacted on October 21, 1989, authorized up to $9 million in unexpended funds from Public Laws loo-276 and 101-141to be used to promote democracy and national reconciliation in Nicaragua, including assistancefor free and fair elections. The legislation required the Agency for International Development (AID) to use these funds for support and monitoring of the election processand authorized up to $6 million for internal groups, such as political organizations and indepen- dent labor unions. It also earmarked $1.06 million for two U.S. observer groups and an electoral assistancegroup basedin Costa Rica. These funds included $400,000 for the Council of Freely-Elected Heads of Gov- ernment, $260,000 for the Center for Democracy,and $400,000 for the Center for Training and Electoral Promotion (CAPEL). The legislation required those funds that were used to assist internal groups to be administered consistent with the charter and standard operating procedures of the National Endowment for Democracy.The Endowment is a privately incorporated U.S. organization formed to encouragedemocracy and pluralism through grants to independent institutions. The legislation also imparted the senseof Congressthat ‘Public Law loo-276 (Apr. 1, 1988) authorized $47.9 million to provide humanitarian assistance to the Nicaraguan Resistance, aid to children affected by the Nicaraguan civil strife, and support for a commission established to monitor conditions in Nicaragua. Public Law 101-14 (Apr. l&1989) authorized $49.76 million for humanitarian assistance to the Resistance. Page 8 GAO/NSIADgO-245Assistance to Nicaragua Chapter 1 Introduction UNO'S representative on the Nicaraguan SupremeElectoral Council should seekto ensure that funds provided to the Council would be used solely for technical electoral purposes,such as ballot boxes and ballot printing. In October 1989, AID assignedresponsibility for the program to its Task Program Force on Humanitarian Assistance in Central Americas2In addition to its Implementation headquarters staff in Washington, DC., the Task Force hired two per- sonal service contractors to monitor program activities in Nicaragua. Although AID’S Office of the Regional Inspector General in Honduras planned to monitor the program closely, its efforts were limited because it was unable to obtain visas for its staff from the Nicaraguan government. In November 1989, the Endowment, the three groups specified in the legislation, and Freedom House-a U.S. organization formed to assist human rights and pro-democracy movements abroad, submitted pro- gram descriptions and estimated costs. By the end of December1989, AID had approved these submissions;established accounting require- ments and guidelines on the use of funds; and signed grant agreements with the Endowment and the other four groups. Of the $9 million authorized, AID obligated about $8.96 million, including Activities and $8.8 million in grants, to the Endowment, the three groups specified in Expenditures the legislation, and Freedom House, and the remainder to cover its man- agement and oversight expenses.Table 1,l shows the breakdown of these obligations. ‘AID established the Task Force in April 1988 to administer humanitarian assistance to the Nicara- guan Resistance and related assistance programs in Central America. Page 9 GAO/NSIAD-90-245Assistauce to Nicaragua CIuptar 1 Introduction Tabio 1.1: Public Law 10%110 Obligationa Oraanization Obiiaation AID $144,000 Grantee - Council of Freelv-Elected , Heads of Government 502,760” Center for Democracy 3971240b Freedom House 82,000 CAPEL 400,000 National Endowment for Democracy 7,435,ooo Totei Obligated $8,981,000 Amount Unobligated 39,000 Totei Available $9,000,000 %cludes $102,760 granted in February 1990, in addition to the $400,000 earmarked in Public Law lOl- 119, to cover expenses for additional delegates and to monitor transition events. blncludes $147,240 granted in February 1990, in addition to the earmarked $250,000, to cover expenses for additional delegates and to study post-election needs for encouraging democracy. The Council, the Center for Democracy,and Freedom House primarily conducted election monitoring, and CAPEL conducted civic education activities, provided technical assistanceto the Nicaraguan Supreme Electoral Council, and sponsoredan observer group. To implement its program, the Endowment granted about $7 million to the National Democratic Institute, the National Republican Institute for International Affairs,3 the Free Trade Union Institute,4 and the Interna- tional Foundation for Electoral Systems”to support activities of the UNO and other internal groups in Nicaragua. It retained the remaining funds for administrative expensesand a contingency fund. The National Democratic Institute and the National Republican Institute for International Affairs received about $6.3 million to support registra- tion verification, poll watching, civic education, and other non-campaign activities of the UNO and the Institute for Electoral Promotion and Training (IPCE), a civic association established by Nicaraguan political leaders. Of this amount, the two institutes granted about $3.4 million to UN0 and WE, retained about $799,000 for managementcosts and other program-related expenses,and reserved the remaining $2 million for ‘?he two institutes are U.S. nonprofit organizations established to promote and strengthen demo- cratic institutions overseas. 4The Frw Trade Union Institute is a U.S. organization associated with AFL&IO. “The Inten&ional Foundation for Electoral Systems is a nonprofit U.S. education and research foun- dation that supports free electoral prowsses ln emerging democracies. P8gelO GAO/NSLAIMO-245Assistance to Nicaragua Chapter 1 lntmduction payment of electoral taxes UNO owed to the Nicaraguan SupremeElec- toral Council. The Free Trade Union Institute received an Endowment grant of $493,013, primarily to support the Nicaraguan Confederation of Labor Unity, an independent trade union. These funds were administered by the American Institute for Free Labor Development.”The Confederation primarily conducted activities to promote voter education and trained activists to get out the vote. Also, the International Foundation for Elec- toral Systemsreceived $220,000 to support Via Civica, a local civic asso- ciation Via Civica planned to expend these funds for civic education activities before the election but was unable to obtain the Nicaraguan government’s approval to receive the funds until April 1990. As a result, the group used a small portion of the funds to support inaugural activi- ties after the election. Figure 1.1 shows a diagram of the funding arrangements for AID and Endowment grants. “The American Institute for Free Labor Development is a regional institute of AFL-CIO that assists independent trade unions in Latin America. Page 11 GAO/NSIAD-90-246Assistance to Nicaragua chapter 1 lntxoduction Figure 1.1: Public Law 101-119 Fundlng Arrangement@ Agency for International Development Council of Endowment for Freely-Elected Heads of Government Center for Free Trade Union Institute/ Democracy National Democratk and International Foundation for American Institute for Free Republican Institutes Electoral Systems Labor Development L--l Freedom House Under Public Law 101-l 19, AID had to obligate funds by February 28, 1990, but could authorize activities to extend beyond that date. AID ceasedobligating funds on February 28, 1990, and authorized most grantees to conduct activities until May 31, 1990. In May 1990, AID authorized the Center for Democracyto study post-election changesto encouragedemocracy and extended the Center’s grant until June 30, 1990. AID also permitted the National Democratic and Republican Insti- tutes to expend $60,000 to provide assistanceto IPCE through December31, 1990, to support post-election activities. Further, AID authorized the Endowment to use $610,266 of the unexpended funds from its initial grant to support democracy-building activities, through December31, 1990, of Via Civica, several youth groups, three radio sta- tions, and La Prensa-a newspaper organization. AID permitted grantees to charge relevant expensesto their grants for activities commencingon or after October 1, 1989, which was the begin- ning of the voter registration period. As of June 30, 1990, AID, the Endowment, and their grantees reported that of the available $9 million, they had expended about $6.9 million. Table 1.2 shows a breakdown of these expenditures. Page 12 GAO/NSIAD-@O-246 Amistance to Nicaragua chapter 1 Introduction Table 1.2: Public Law 101-119 Expenditurer (as of June 3Q1990) Orgsnlzatlon Expenditure AID $86.172a AID Grantees National Endowment for Democracy 40,074 Council of Freely Elected Heads of Government 168,720 Center for Democracv 372,467 CAPEL 281,535 Freedom House 82,000 Subtotal 944,796 Endowment Grantee8 and Internal Groups National Democratic Institute 1.142.51 lb National Republican Institute l,175,912b UN0 1,719,189 IPCE 1,289,692 American Institute for Free Labor DeveloDment 135.579 Confederation of Labor Unitv 357,434 International Foundation for Electoral Systems 0” Via Civica 27,719 Subtotal 5,848,036 Total Expendltureo $6,879,004 Note: Figures for the National Democratic Institute and the National Opposition Union reflect expendi- tures as of March 31, 1990; for the Endowment, Center for Electoral Promotion and Training, and the National Republican Institute as of April 30, 1990; for AID, the Council, Freedom House, Institute for Electoral Control and Promotion, and Via Civica as of May 31, 1990; and for the remaining groups as of June 30,199O. aFigure reflects salary payments to two personal service contractors hired to monitor program activities. ‘Includes $815,000 paid by each organization to the Supreme Electoral Council on UNO’s behalf for electoral taxes. ‘The Foundation expended funds from other sources to cover Public Law 101-l 19 related expenses As of July 30, 1990, AID, the Endowment, and their grantees, except for Freedom House,the American Institute for Free Labor Development, and the Confederation, were continuing to charge expensesagainst their Public Law 101-l 19 grants. According to an AID official, any unobligated funds and unexpended obligated funds will be returned to the U.S. Trea- sury after all program activities ceaseand all expenditures are charged. At the request of the Chairmen of the Subcommitteeson Foreign Opera- Objectives, Scope,and tions, Senateand HouseAppropriations Committee; Subcommitteeon Methodology Western Hemisphere Affairs, HouseCommittee on Foreign Affairs; and Subcommittee on Western Hemisphere and PeaceCorps Affairs, Senate Page 13 GAO/NSIAD-90-246Assistance to Nicaragua Chapter 1 Intxoduction Committee on Foreign Relations, we reviewed the administration of funds authorized under Public Law 101-l 19. Our objectives were to determine whether AID, the National Endowment for Democracy,and their grantees had complied with Public Law 101-119and other appli- cable requirements and whether they had established adequate controls to account for expenditures. We met with AID officials and representatives of each U.S. and Nicara- guan organization that received these funds. We also met with auditors from the public accounting firm of Price Waterhouse.At each location, we reviewed pertinent documents on program activities and expendi- tures. We conducted our review in Washington, DC.; Atlanta, Georgia; San Jose,Costa Rica; Managua, Nicaragua; and several rural areas in Nicaragua. To determine whether grantees complied with Public Law 101-l 19 and other applicable requirements, we reviewed the legislation, Endowment operating procedures and guidelines, grant agreementrequirements, and expenditure records. In Nicaragua, we attended training seminars and reviewed training materials. We also reviewed promotional materials, such as pamphlets, billboards, hats, and T-shirts, and television, radio, and print advertisements. We visited UN0 headquarters in Managua and three regional offices to observethe use of equipment and accompanied two observer delegations to three regions on election day. To determine whether funds were properly controlled, we reviewed financial records of AID, the Endowment, and their grantees and spot- checked supporting documentation for selectedexpenditures. We also reviewed accounting and procurement procedures and examined invoices, purchase orders, payroll records, and audit reports. Further, we coordinated our work with Price Waterhouseand other audit firms to avoid duplication of effort. We were unable to verify whether funds provided to the Nicaraguan SupremeElectoral Council were used solely for technical electoral pur- posesbecausethe Council did not permit us to review its expenditure records. Council officials provided information on the Council’s accounting system and activities, but we could not verify their statements. We conducted our review from November 1989 to June 1990 in accor- dance with generally acceptedgovernment auditing standards. Page 14 GAO/NSIAD-90-246AssMance to Nicaragua c chaptar 1 IIltXOdUCtiUU We did not obtain written agency commentson this report. However, we did obtain oral commentsfrom AID officials on a draft of this report. They generally agreedwith our findings and conclusionsand suggested someminor modifications, which we have incorporated in the report where appropriate. Page 16 GAO/NSIAD-W-245Assistance to Nicaragua , r Chapter 2 Implementation ProblemsLimited SomeActivities AID and Endowment grantees generally met project objectives, but some groups could not fully carry out planned activities. IPCE and UNO did not gain accessto funds or equipment until about 3 weeks prior to the elec- tion and thus could not fully conduct verification and civic education activities. The Center for Democracy had to limit election-day moni- toring becauseit could not obtain visas for most delegates,and Via Civica was unable to conduct a parallel vote count or recruit as many activists as planned becauseit did not receive legal status until after the election. Further, CMEL was unable to obtain approval to distribute edu- cational pamphlets at two rallies or to air sometelevision spots. Although Public Law 101-119funds were available in late October 1989, IPCE and UN0 UN0 and IPCE did not becomeeligible to receive the funds until mid- Experienced Delays December1989 becauseit took time to satisfy AID requirements and negotiate grant agreements.Further, the Nicaraguan government did not grant approval until early February 1990 for the two groups to receive funds. Actions Required Prior to After Public Law 101-l 19 was enacted,the Endowment began negoti- Signing Grant Agreements ating with AID and the National Democratic and Republican Institutes to reach agreement on UNO and IPCE program activities and restrictions on the use of funds. The Endowment signed agreementswith AID on November 27,1989, and with the Institutes by December4,198Q. On December12, 1989, Price Waterhousecertified that UNO and IPCE had adequate accounting and internal control systems and had complied with agreementterms and applicable Nicaraguan laws. By December13, 1989, the Institutes had reached agreement with UNO and IPCE on pro- gram activities and budget requirements. At that time, about 6 weeks after the legislation was enacted, UN0 and IPCE becameeligible to receive funds. Endowment and Institute officials emphasizedthat they expedited the processfor finalizing grant agreementsto the fullest extent possible. They noted that it took time to satisfy AID’S requirements on the use and accountability of funds. Specifically, the Institutes had to hire an accounting firm to set up accounting and internal control systems for UN0 and IPCE aa well as a procurement agent. Further, UNO had to hire accounting personnel and resolve disagreementswithin its political council on budgetary and equipment requirements. AID officials stated that the normal time required to finalize grant agreementsis usually much longer than 6 weeks. Page 16 GAO/NSIADBO-245Assistamw to Nicaragua . Chnpter 2 Implementation Problems Limited SomeActivith Releaseof Funds to IPCE According to Nicaraguan law, organizations, including groups such as UN0 and IPCE, must obtain legal status, register foreign donations with the Ministry of External Cooperation, and deposit foreign donations in the Central Bank of Nicaragua. Ministry approval is required before the Central Bank can releasefunds. According to National Democratic and Republican Institute officials, they had been informed, in October 1989, by Ministry and Central Bank officials that the processfor granting approvals and releasing funds would take 3 to 6 days. However, about 3-l/2 months elapsedbefore the Ministry authorized the Central Bank to release funds to IPCE. The two Institutes granted about $1.3 million to IPCE to cover expenses for various activities, including poll-watcher training, verification of voter registration lists, civic education programs, and salaries for administrative staff. In early November 1989, IPCE requested legal status and permission to receive foreign donations, including Public Law 101-l 19 funds and funds from a prior joint Institute grant. The Ministry approved the donations on November 11,1989, and authorized IPCE to open an account at the Central Bank. However, IPCE encounteredthe fol- lowing delays before it was able to deposit and withdraw funds from either grant: l After IPCE received approval to open an account, Institute officials attempted unsuccessfully for over a month to wire funds from the pre- vious grant. On December19,1989, the Central Bank agreedto accept cashier’s checks,and IPCE provided checkstotaling $200,000 from the prior grant. (Although Public Law 101-119 funds becameavailable to IPCE on December13, 1989, IPCE officials were reluctant to deposit these funds until the Ministry had authorized the bank to releasethe $200,000 already deposited.) . On January 2,1990,* the bank cleared IPCE’S checks and deposited the funds. The next day, IPCE requested permission from the Ministry to withdraw the funds. On January 9, 1990, the Ministry stated that before funds could be released,IPCE would have to amend its bylaws becauseit had improperly registered as a profit-making organization when requesting legal status. . On January 16, 1990, the Ministry informed IPCE that it would authorize the bank to releasethe deposited funds but that it would withhold approval from IPCE to withdraw any additional funds until the National Assembly approved the amendedbylaws. Four days later, the bank releasedthe funds. On the sameday, IPCE provided Public Law 10l-l 19 ‘The bank was closed from December 23,1989, through January 1, 1990, for the holidays. Page 17 GAO/NSIADtlO-245Assistance to Nicaragua cllaptm 2 Implementation ProblemaIhnlted SomeAcUvlUes funds in cashier’s checkstotaling $230,000 and submitted amended bylaws to the Ministry. 9 On January 22, 1990, the Ministry provided the bylaws to the office of the Nicaraguan president; 2 days later the Ministry provided them to the National Assembly. On January 28,1990, former President Carter met with Nicaraguan government officials, who subsequently agreedto releaseIPCE funds on the condition that IPCE would allow the Supreme Electoral Council to monitor its activities. On January 31, about 3 weeks prior to the election, the Central Bank released$233,000 to IPCE. After the initial releaseof the funds, IPCE began spending and made additional deposits. Releaseof UN0 Vehicles The Institutes granted about $2.1 million in Public Law 101-l 19 funds to UNO. Of this amount, UN0 expended about $1.6 million to purchase vehi- and Equipment cles and equipment to support UN0 and IPCE poll-watcher training, verifi- cation of voter registration lists, and long-term party activities. UNO experienced delays in gaining accessto Public Law 101-l 19 funds and reaching agreementwith Nicaraguan customs officials to releasevehi- cles and equipment purchased with these funds. Like IPCE, UNO required approval from the Ministry of External Cooperation to withdraw funds from the Central Bank. This approval was contingent on receiving docu- mentation that UN0 had paid required electoral taxes on the items to the SupremeElectoral Council2 To maximize its efforts, UN0 wanted to purchase vehicles and equipment locally and distribute them as quickly as possible after signing its agree- ment with the Institutes on December13,198Q. However, UN0 encoun- tered the following delays in obtaining approval for purchasing arrangements and securing the releaseof items: . On December22, 1989, Central Bank officials informed UNO that the bank had a scarcity of U.S. dollars. BecauseUNO neededdollars to pay local suppliers, UN0 and the two Institutes requested approval from the Supreme Electoral Council to allow the Institutes’ procurement agent to make dollar payments directly to Nicaraguan suppliers. The Council approved this arrangement on January 11, 1990, and also required UN0 to make deposits in the Central Bank to offset these purchases.The ‘Under Nicaraguan law, the Council was entitled to retain 60 percent of funds donated to UNO. How- ever, the Institutes actually had to pay an amount equal to 100 percent to retain sufficient funds to cover UNO’s needs. For example, in order for UN0 to retain $1.6 million needed to purchase vehicles and equipment, the Institutes had to pay $1.6 million, rather than 60 percent of that amount. Page 18 GAO/NSIAD-90-245Assistance to Nicaragua Chapter 2 Implementation ProblemsLimited SomeActivities Institutes’ procurement agent began ordering vehicles and equipment, and initially purchased 88 vehicles for about $743,000; however, Cus- toms was not authorized to releasethe vehicles until UN0 had paid elec- toral taxes and import duties. By January 19, UN0 had deposited funds to cover amounts owed for electoral taxes. . On January 18, a Managua dealer delivered 21 of the 88 vehicles to UN0 headquarters, but UN0 could not use them becauseCustoms had not authorized the local transit authority to allow UN0 to register and license the vehicles. At that time, the other 67 vehicles remained in Custom’s custody becausedealers refused to deliver them until UN0 obtained authorization. l During the week of January 22, 1990, Customs officials informed UNO that it had to hire a customs broker and pay salestax and duties on each vehicle. On January 31, 1990, UN0 deposited $800,000 in the Central Bank to cover the duty, and Customs releasedthe vehicles to UNO on February 2, 1990, The transit authority registered the vehicles 3 days later, and UN0 distributed them on February 6, 1990, about 3 weeks before the election, UN0 also experienced delays in obtaining the releaseof other items from Customs.After the first purchase of vehicles, the Institutes’ procure- ment agent purchased 8 boats, 190 bicycles, 60 motorcycles, 19 genera- tors, and office equipment. By early February 1990, local suppliers had delivered most of these items to Customs.According to UN0 and Institute officials, the processfor obtaining releasewas complex and required dif- ferent paperwork for each item. Also, UNO'S customs broker had to reg- ister each type of equipment with the appropriate government agency. By election day on February 26, 1990, Customs had releasedall items except the radios. UN0 was able to distribute all the vehicles and motorcycles and 180 bicycles before the election but did not have suffi- cient time to distribute the generators, 12 motorcycles, 6 boats, 10 bicycles, and someoffice equipment. The radios were releasedfrom Cus- toms in March 1990. Impact of Delays According to UN0 and IPCE officials, the delays in obtaining funds and equipment limited UNO’S support to IPCE and WE'S ability to fully carry out planned activities. Although IPCE had planned to verify the accuracy Y of nearly 100 percent of the voter registration lists before the election, it was only able to verify about 10 percent. Also, IPCE could not fully carry out its civic education program. The organization had intended to air several media spots and use portable billboards and vehicles as sound Page 19 GAO/NSIAD9O-246Assistance to Nicaragua Chapter 2 Implement&ion Problems Limited SomeActivities platforms throughout Nicaragua to encouragevoter participation. BecauseIPCE did not receive funds and the use of UN0 vehicles until about 3 weeks prior to the election, it was only able to run a limited number of spots, did not have time to move billboards, and visited only three of nine regions with vehicles as sound platforms. Figure 2.1 shows a billboard in Managua, Nicaragua that IPCE displayed prior to the election to provide instructions on voting procedures. Flgure 2.1: IPCE Billboard in Managua, Nicaragua, Wlth Instructions on Voting Procedurea~ aTranslated, this billboard says “There are three electoral ballots. Mark them and deposit them in the corresponding ballot box.” Despite these problems, UNO, IPCE, and U.S. officials believe that the availability of Public Law 101-119funds contributed to ensuring free and fair elections. They noted that UN0 and IPCE were able to support and carry out a comprehensivetraining program for poll watchers as planned and that the presenceof these trained poll watchers, combined with IPCE’S limited civic education activities, encourageda large voter turnout. In their view, the activities of observer groups, funded with Public Law 101-l 19 monies, also inspired confidence in the electoral pro- cess.The officials also stated that the funds were useful becauseUNO and IPCE would be able to use equipment and vehicles for post-election activities. Page 20 GAO/NSIAD-90-245Assistance to Nicaragua chapter 2 Implementation Problems Limited SomeActivities The Center for Democracy,Via Civica, and CAPEL encountered difficul- Difficulties for ties in obtaining Nicaraguan government approvals for their activities. Observer and Other As a result, these organizations scaledback or canceledsomeactivities. Groups The Center for Democracy AID granted $397,240 to the Center for Democracy,primarily to monitor Experienced Difficulties in preelection and transition activities. From October 1989 through Feb- ruary 1990, the Center sponsoreda series of observer delegations com- Obtaining Visas prised of prominent US., European, and Central American foreign dignitaries. The Center planned to sponsor an election day delegation comprised of 7 Center staff and about 60 U.S. and foreign dignitaries, including 22 Americans, 20 Costa Ricans, 4 Hondurans, and 4 Guatemalans.However, the Nicaraguan government denied visas to two Center staff members and the U.S. and Costa Rican delegatesand dis- couraged the Hondurans from visiting Nicaragua under the auspicesof the Center.:’As a result, the Center’s delegation consistedof only 10 per- sons-4 Guatemalan officials, 6 Center staff members, and 1 U.S. citizen.4 The Center had planned to divide the delegation into several teams that would visit all nine regions in Nicaragua to monitor voting on election day. Becausethe delegation’s size was greatly reduced, the members traveled as one team and were able to visit only 16 polling places in Managua and two regions. Center officials believe that difficulties in obtaining visas stemmed from the government’s disapproval of a Center report and public statements of Center officials regarding violence at an UN0 political rally in Masetepe,Nicaragua, in December1989. Delay in Obtaining Legal Via Civica was unable to obtain legal status until after the election; as a Status Limited Via Civica’s result, it could not complete all of its planned activities. On December1, 1989, the International Foundation for Electoral Systemssigned an Activities agreementto provide Via Civica $220,000 in Public Law 101-119funds to (1) purchase office equipment, (2) provide civic education on the mechanicsof voting, (3) conduct three public opinion polls, and (4) increase its volunteer activist force from 2,200 to 8,000. Via Civica “At the Nicaraguan government’s request, 7 of the 20 Costa Ricans agreed to travel to Nicaragua under the government’s auspices. The Hondurans and remaining Costa Ricans did not visit Nicaragua. “This individual was not part of the original delegation but agreed to join the delegation in mid- February and already had a visa. Page 21 GAO/NSIAIHO-245 Assistance to Nicaragua Chapter 2 Implementation Problems Limited SomeActivities planned to use this volunteer network to conduct a parallel vote count and get-out-the-vote activities. These activities were a continuation of projects funded under two prior Endowment grants. Prior to expending funds, AID required all granteesto comply with Nica- raguan laws requiring organizations to obtain legal status and register foreign donations. Until the grantees either complied or presented evi- denceas to why they were unable to comply, AID agreedthat grantees could use other sourcesof funding and request reimbursement of Public Law 101-l 19 funds. On January 8, 1990, Via Civica requested permis- sion from the Ministry of External Cooperation to receive the donation. The Ministry denied the request and informed Via Civica that it first had to obtain legal status, Although Via Civica submitted its application for legal status on February 1, 1990, the National Assembly did not grant legal status until April 17, 1990. BecausePublic Law 101-l 19 funds were not available prior to the elec- tion, Via Civica relied on funds remaining from a previous Endowment grant. Although Via Civica was able to conduct polls and seminars on voting procedures and print educational advertisements, it did not have sufficient funds to conduct a parallel vote count and could only increase its volunteer force to 2,600 members.After funds becameavailable, Via Civica requested reimbursement of $27,719 for expensesbetween March 1,1989, to May 31, 1990, including $16,000 for the purchase of 100,000 Nicaraguan flags distributed during the presidential inaugura- tion in April 1990, and the remainder for administrative expenses. According to Endowment officials, the purpose of purchasing flags was to promote the restoration of the Nicaraguan flag as a national symbol. CAPEL Was Unable to AID granted CAPEL$400,000 to provide technical assistanceto the Obtain Approval for Some Supreme Electoral Council, sponsor an observer group, and conduct civic educational activities. CAPELwas able to complete most of these Activities activities; however, the Council cancelled or rejected some.In the final week before the election, CAPELplanned to air-drop about two million civic education leaflets to crowds at the final UNOrally on February 18, 1990, and the final Sandinista Front rally on February 21, 1990. It also planned to televise six 30-secondcivic education spots and an 8-minute videotape to train Council voting table officials. However, the Council cancelledthe airdrop and rejected two of the television spots. CAPELcan- celled production of two other spots becauseit had difficulty purchasing air time. Further, CAPELwas unable to reach agreementwith the Council on the content of the videotape until February l&1990. Becauseof a Page 22 GAO/NSIAD-SO-245 Assistance to Nicaragua Chapter2 Implementation ProblemaLimited SomeActivltks shortage of air time, CAPELchoseto air only the television spots and can- celled production of the videotape. According to CAPELofficials, Council officials stated that they cancelled the airdrop becauseit was too dangerous and that the Nicaraguan presi- dent, Daniel Ortega, had objected to the content of one of the two televi- sion spots. CAPELofficials did not believe that the airdrop was too dangerous,and attributed their difficulties in reaching agreementwith the Council to political sensitivities surrounding the election. Page 23 GAO/NSIADBO-246Assistance to Nicaragua Chapter 3 . compliance With Requirementsand Accountability of Funds AID and Endowment grantees generally conducted activities according to legislative and other requirements and established adequate controls to account for Public Law 101-l 19 funds. However, IPCE paid $119,018, or about 9.2 percent of its total expenditures, in unauthorized salaries and UNO campaign activities. As of July 31,1990, the two U.S. groups responsible for overseeingIPCE activities had recouped $92,360 of these costs and were taking steps to recoup the remainder. Further, the Con- federation of Labor Unity lacked certain accounting controls and did not fully comply with AID requirements for adhering to Nicaraguan law. Also, the Confederation and Via Civica did not account for Public Law 101-l 19 funds separately as required by AID. Public Law 101-l 19 specified that funds provided to internal groups Legislative would be administered in accordancewith the charter and operating Requirements and procedures of the National Endowment for Democracy.The Endowment Other Restrictions charter specifically restricted grantees from financing the campaigns of candidates for public office. The legislation also provided for contribu- tions through the UNO to the Nicaraguan Supreme Electoral Council, as necessary,and imparted the senseof Congressthat the UN0 representa- tive on the Council would seek to ensure that any funds going to the Council would be used for technical electoral purposes, such as ballot boxes and ballot printing. Further, AID and the Endowment included specific guidelines in all grant agreementsto clearly define activities that could or could not be funded under Public Law 101-l 19. For example, the agreementsprovided that, among other things, . vehicles could not be used as sound platforms for endorsing a political party or candidate but could be used for regular party businessand to support get-out-the-vote efforts; . television, radio, and print advertisements could not name a candidate or party but could promote democracy, urge citizens to vote, and inform voters of voting procedures; l T-shirts, posters, buttons, and other promotional material could not name a candidate or party; and . salaries could not be paid to candidates. In February 1990, AID modified these guidelines to permit payment of salaries to employeeswho were also candidates for municipal councils. Endowment and Institute officials had requested the modification Page 24 GAO/NSLAD-90-245 Assistance to Nicaragua chapter 3 Compliance With Requirements and Accountability of Funda becauseIPCE employed somemunicipal candidates to monitor voter reg- istration activities in October 1989 and wanted to retain these individ- uals until the election to supervise verification of voter registration lists and the training of poll watchers. According to an IPCE official, no other funds were available to pay these salaries, and it would have been diffi- cult to replace the employeesand train additional staff in time to carry out planned activities. The Endowment’s charter prohibits the financing of campaigns;how- ever, Endowment and Institute officials emphasizedthat salaries for the municipal candidates were compensation for full-time non-campaign activities. Also, voters do not chooseindividual candidates but rather elect each party’s entire slate for the municipal council. Further, they noted that municipal candidates do not campaign for themselves and would likely use the salary for living expensesbecausethey had no other means of support. AID and the Endowment expended funds only for authorized activities, Grantees Conducted except that IPCE paid salaries to someNational Assembly candidates and Authorized Activities expensesfor someUN0 television and radio campaign advertisements. We were unable to verify whether the SupremeElectoral Council had expended taxes UNOpaid for technical electoral purposes only because the Council would not grant us accessto its financial records. Grantee Activities During three trips to Nicaragua, we observed various activities funded with Public Law 101-119funds. Activities included training seminars; television, radio, and newspaper advertisements; observer monitoring; and use of office equipment and vehicles. In these instances,we found that grantees had used equipment and vehicles only for authorized pur- posesand had conducted activities that focused on encouraging voter participation and distributing information on voting procedures. Price Waterhousefound that, as of July 31, 1990, IPCE had paid $119,018 in questionable expensesfrom October 31, 1989, to April 30, 1990, including $16,764 for expenseslacking adequate support docu- mentation, $24,070 in salaries to 37 employeesperforming non-cam- paign duties who were also UN0 candidates for the National Assembly, $76,262 for television and radio advertisements that promoted UNO'S campaign, and $1,942 in duplicate salaries. The expensesrepresented about 9.2 percent of WE’S total expenditures. Page 25 GAO/NSIABBO-245Assistance to Nicaragua Chapter 3 Compliance With Requirementeand Accountability of Funds National Democratic and Republican Institute officials disallowed all questionable expenses.As previously discussed,the candidates’ salaries were not allowable becausegrant agreementguidelines permitted salary payments only to municipal candidates, and the campaign advertise- ments were not allowable under the Endowment charter. As of July 31, 1990, Institute officials had recouped $92,360 by withholding reim- bursement from IPCEfor this amount in allowable expensesand were negotiating with IPCEon a plan for repayment of the remaining amount. Institute officials believed that the disallowed expenditures occurred due to the IPCE'Shigh level of activity after Public Law 101-l 19 funds becameavailable in early February 1990. During that month, IPCEoffi- cials trained poll watchers, verified voter registration lists, and pro- moted civic education and voter participation. Theseofficials noted that IPCEreceived and spent funds over 3 weeks and not over an extended period, as originally intended, which would have allowed for a more orderly disbursement of funds. Use of Supreme Electoral To comply with Nicaragua’s electoral law, the Institute paid about $1.63 Council Tax million in Public Law 101-l 19 funds to the SupremeElectoral Council for electoral taxes on UNO'Sbehalf, as of July 31, 1990. According to the Council president, the governing Sandinista party was the only other recipient of foreign donations and paid about $220,000 in taxes. This official also stated that tax revenueswere commingled with other funds, such as government appropriations and bilateral donations, in a general fund totaling $20 million. The general fund was used to pay for ballot paper and ink, per diem for poll watchers, and other election expenses. We conducted a limited review of Council activities, including radio and newspaper advertising and actions of voting officials on election day at 20 of 4,392 polling tables, and interviewed the UN0 representative on the Council. In these instances,we found no evidencethat the Council had funded partisan activities, However, we were unable to fully verify how the Council expended the UNOtax becauseCouncil officials would not grant us accessto expenditure records. Figure 3.1 is an example of a Council newspaper advertisement that was published in a daily news- paper, La Prensa, in February 1990. Page 26 GAO/NSIAD-90-246Assistance to Nicaragua chapter 3 Compliance With Requirements and Accountability of J?unds Flpure 3.1: Supreme Electoral Council Advertlrement Promoting Voter Participationa La meior herramienb es iv vofo En las elecciones de125 de Febrero de 1990 podemos elegir a nuestros gobernantes entre 10s candidates a Presidente y Viceprqsidente, representantes ante la Asamblea National y miembros de 10s Concejos Municipales. Votar es elegir tu voto es llbre y direct0 TUVOTOESSECRETO comei supremo eleckd Garantfa de Elecciones Libres y Honestas. aTranslated, the advertisement reads, “The best tool is your vote. In the elections of February 1990, we can elect our leaders among the candidates for President and Vice-President, Representatives to the National Assembly and members of the Municipal Councils. To vote is to choose. Your vote is free and direct. Your vote is secret. Supreme Electoral Council. Guarantor of free and honest elections.” Source: La Prensa Page 27 GAO/NSIAMO-245 Assistance to Nicaragua Cllaptera Compliance With Requirementa and Accountability of Funds In February 1990, the Council president stated that a private accounting firm was auditing Council expenditures and that the firm’s report might be available in the future. As of July 1990, the firm had not yet issued a report. In March 1990, the charge d’affaires at the U.S. Embassy in Managua requested that the Council account for the UNOtax but had not received a responseas of June 1990. As of July 31, 1990, Institute offi- cials estimated that UNOstill owed about $89,000 in taxes. Final pay- ment is being withheld until the exact amount is determined and the Council submits a request for payment. AID required each grantee to maintain an adequate system to account for Accountability of expenditures charged to the Public Law 101-l 19 program and to arrange Funds for an independent concurrent audit. To facilitate the audit and to ensure accountability, funds were to be maintained in a separate bank account. Further, all groups were required to comply with applicable Nicaraguan laws prior to expending funds. Compliance With AID In November 1989, AID hired Price Waterhouse,a public accounting firm, Requirements to survey the accounting systems of CAPELand the four internal groups to certify whether each had adequate controls and had complied with grant agreement requirements. At the time of the surveys in December 1989, UNOand the Confederation of Labor Unity had not yet established fully reliable accounting procedures, and UN0 had not hired any accounting staff. Further, the Confederation had not registered its grant, and Via Civica had not obtained legal status as required by Nica- raguan law. During December1989, Price WaterhouseassistedUNOin establishing accounting controls and procedures, and UN0 hired accounting staff. On December18, 1990, Price Waterhousecertified the accounting systems of UNO,IPCE,CWEL, and Via Civica. During Decemberand January 1990, the accounting firm of Deloitte and Touche assistedConfederation per- sonnel in making improvements required for certification. The Confeder- ation was certified on January 26, 1990. In letters certifying the accounting systems of Via Civica and the Confederation, Price Waterhousereported that two groups still had not complied with Nica- raguan law on foreign donations. Page 28 GAO/NSIAD-SO-246 Assistance to Nicaragua Chapter 3 Compliance With RequIrementa and Accountability of Funds We found that the Confederation had expended Public Law 101-119 funds before it fully registered the grant with the Nicaraguan govern- ment. On February 7,1990, the American Institute for Free Labor Devel- opment received $396,000 from the Endowment. Prior to this date, the Institute transferred funding from other sourcesto support the Confed- eration’s activities. These Public Law 101-119funds becamecommingled with other funds and were used to fund Confederation activities. On February 16, 1990, the Confederation registered $10,000 of its $493,013 grant with the Ministry of External Cooperation; however, it never reg- istered the remainder. As of June 30,1990, the Confederation reported expenditures of about $357,434 in Public Law 101-119funds. Institute officials believed that they were authorized to transfer funds to the Confederation after the Confederation was certified by Price Waterhouse.Further, they noted that Confederation officials were reluc- tant to fully register the grant prior to the election becausethey feared the Nicaraguan government might delay the releaseof funds. Endow- ment officials believe that the Confederation made a good-faith effort to register the grant and, in June 1990 sought AID'S approval to authorize Confederation expenditures. In their view, the Confederation’s reluc- tance to fully register the grant was defensible, since compliance with Nicaraguan law might have jeopardized the Confederation’s program. On June 29, 1990, AID agreedto authorize the Confederation’s expenditures. Adequacy of Accounting GAOand private auditors found that grantees had established adequate Procedures procedures and had properly accounted for expenditures except that the Confederation had someweaknessesin accounting controls. Further, Via Civica and the Confederation did not account for Public Law 101-119 funds separately as required by AID. In December1989, the American Institute for Free Labor Development hired the accounting firm of Deloitte and Touche to evaluate the Confed- eration’s financial system. The firm reported several deficiencies. For example, the Confederation did not have adequate procedures for authorizing cash payments and obtaining support documentation. Fur- ther, its accounting personnel had not prepared financial reports. The auditors recommended,among other things, that the Confederation establish procedures for handling funds, prepare accountability state- ments, and create a separate bank account and financial records for Public Law 10l-l 19 transactions. During December1989 and January Page 29 GAO/NSIAD-99-246Assistance to Nicaragua chapter 3 Compliance With Requirementaand Accountability of Punds 1990, Deloitte and Touche auditors assistedConfederation personnel in designing an adequate accounting system to addressthese issues. In April 1990, the firm completed its secondand final evaluation. It reported that Confederation accounting personnel had taken some action but had not fully implemented its recommendations.For example, improvements were still neededin implementing administrative con- trols, compiling support documentation, and preparing financial reports. Also, the Institute conducted only limited oversight of Confederation accounting activities. Institute officials stated that they intend to assign a program officer and hire a full-time accountant to improve oversight and resolve weak- nesses.They also noted that the Confederation had established its accounting system in December1989 and had not had sufficient time to implement and perfect the system. In addition, Via Civica and the Confederation did not comply with AID requirements to account separately for Public Law 101-l 19 funds. Spe- cifically, neither had established a separate bank account or maintained separate accounting records while expending funds. Page 30 GAO/NSIAD90-246Assistance to Nicaragua Page 31 GAO/NSIAD-90.245Assistance to Nicaragua Appendix I G7-- Major Contributors to This Report Stewart L. Tomlinson, Assistant Director National Security and Sharon L: Pickup, Evaluator-in-Charge International Affairs Audrey E, Solis, Evaluator Division, Wa&ington, Jose M. Pena, Evaluator DC. (463788) Page 32 GAO/NSIAD-90-245Assistance to Nicaragua ‘lh first five copitbs of each GAO report are free. Additional copies artL $2 t*;tch. Ordtbrs si~ot~ld be sent. to the following address, accom- lunit~tl by a check or money order made out to the Superintendent. of Ihcwnwrit.s, when necessary. Orders for 100 or more copies t.0 be nutiletl to a single address are discounted 25 percent.. I I.S. General Accounting Office I’.(). Box 601 ii (;ait,lrersbnrg, MI) 20877 Orders may also be placed by calling (202) 2756241. i
Central America: Assistance to Promote Democracy and National Reconciliation in Nicaragua
Published by the Government Accountability Office on 1990-09-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)