oversight

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)

GAO


                                                       CENTRAL AMERICA
                                                       Assistance to Promote
                                                       Democracy and
                                                       National Reconciliation
                                                       in Nicaragua




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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
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                           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.



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                     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
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                                         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.


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                                 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
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                                 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
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Chapter2
Implementation ProblemaLimited
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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
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                        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