oversight

Central America: Activities of the Verification Commission

Published by the Government Accountability Office on 1990-02-23.

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

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                               I’M)

                                                                                           CENTRAL AMERICA
                                                                                           Activities of t !he
                                                                                           Verification
                                                                                           Commission




 -. .-.*_.
        - ..__.                                                                                                          -
 (;A() IvSIAI)-!bO-tiT,
                   United States
                   General Accounting Office
                   Washington, D.C. 20648

                   Comptroller General
                   of the United States

                   B-235946
                   February 23,199O
                   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
                   House of Representatives

                   The Honorable George W. Crockett, Jr.
                   Chairman, Subcommittee on Western
                     Hemisphere Affairs
                   Committee on Foreign Affairs
                   House of Representatives

                   Public Law loo-276 (Apr. 1, 1988) required GAO to independently audit
                   the expenditure of funds to provide assistance to Central America.
                   These funds included $10 million in unobligated fiscal year 1986 funds
                   transferred from the Department of Defense to the Agency for Interna-
                   tional Development (AID) to support activities of the Verification Com-
                   mission The Commission was established to ensure compliance with the
                   Sapoa Agreement between the Nicaraguan government and the Nicara-
                   guan Democratic Resistance in March 1988. The Agreement called for,
                   among other things, a cease-fire and relocation of Resistance forces to
                   zones inside Nicaragua.


Results in Brief   lion authorized. Political events in Nicaragua prevented the Commission
                   from fully carrying out its verification activities. Thus, the Commission
                   could not use some vehicles and equipment it had purchased for those


                   Page 1                                        GAO/NSIAD-9066   Central America
                  5238946




                  activities. In addition, other items were not used becausethey were
                  impounded by the Nicaraguan government, power or other equipment
                  necessaryfor operation was lacking, or the items were not needed.The
                  Commissioninitially paid high salaries to someof its employeesbut sub-
                  sequently reduced the salaries and recouped some funds.
                  As of February 1990, the Commission’sfuture role was uncertain. Few
                  people remained employed and disposition of equipment had not been
                  determ ined.

                  On March 23,1988, the government of Nicaragua and the Nicaraguan
Creation of the   Resistancesigned a prelim inary cease-fire agreement at Sapoa,Nicara-
Comrnission       gua. In addition to a cease-fire,the agreementcalled for relocation of
                  Resistanceforces to seven zonesinside Nicaragua where they would
                  receive humanitarian assistance;amnesty for political prisoners; peace-
                  ful reintegration and full political, economic,and social participation for
                  those who had left Nicaragua; and freedom of expression. The Verifica-
                  tion Commission,to be headed by Cardinal Obando y Bravo of the Nica-
                  raguan Catholic Church and Joao Baena Soares,Secretary General of
                  the Organization of American States (w), was established to verify
                  compliancewith all aspectsof the agreement.

                  Public Law loo-276 transferred $10 m illion of unobligated fiscal year
                  1986 DefenseDepartment funds to AID for periodic payments to support
                  Commissionactivities. These funds were to remain available until
                  expended. The AID Administrator established a task force to implement
                  this assistanceand other programs funded under the legislation.’After
                  signing a cooperative agreementwith the Commissionin May 1988, AID
                  began advancing funds to the Commission.
                  In March 1988, the Commissionbegan hiring staff, purchasing equip-
                  ment, and conducting initial verification activities.2Specifically, the Car-
                  dinal’s organization investigated and reported on alleged cease-fire and
                  human rights violations. On behalf of the 0~s Secretary General, the W
                  Inter-American Commissionon Human Rights studied and reported on


                  ‘P *L . loo-276 also provided $17.7 million in humanitarian assistice tb the Nicaraguan Resistance
                  and $17.7 million to aid children injured in the Nicaraguan war.
                  2The Verification Commission was not established as a unified legal entity. The Cardinal’s organiza-
                  tion and the OAS conducted activities and expended funds separately under the cooperative
                  agreement.



                  Page 2                                                          GAO/NSIAD9OB6 Central America
                     B-235946




                     amnesty eligibility and due processfor membersof the National Guarda
                     From March through June 1988 and in September 1988, the QASSecre-
                     tary General, the Cardinal, or their representatives attended negotia-
                     tions between the Nicaraguan government and the Resistance.

                     Shortly after the Commissionbecameoperational, political events in
                     Nicaragua prevented it from fully carrying out its duties. In June 1988,
                     negotiations between the Resistanceand the Nicaraguan government
                     broke down. The cease-firezonesdid not becomeoperational, and the
                     Nicaraguan government withdrew logistical support of the Commission.
                     In August 1988, the government proposed to lim it the Commission’s
                     duties to verifying cease-fireviolations and issuing statements on nego-
                     tiations that had taken place. In October 1988, the government decreed
                     that any Nicaraguans receiving U.S. funds under Public Law loo-276
                     were guilty of treason and subject to imprisonment4
                     Due to the decree and the low level of verification activity, the Cardi-
                     nal’s organization reduced its staff to a core level. Since October 1988,
                     Commissionactivities have been lim ited to occasionalcease-fire investi-
                     gations, verification of the releaseof former National Guard members,
                     and talks with AID, the Nicaraguan government, and the Nicaraguan
                     Resistanceconcerning a possible role in carrying out a plan devised by
                     the Central American presidents to demobilizeand repatriate Resistance
                     members.”


Fund Transfers and   m ission. The 0~s additionally earned about $107,000 in interest. Thus,
Expenditures         total funds available to the Commissiontotaled about $4.2 m illion. As of
                     June 30, 1989, the Commissionhad spent about $1.9 m illion, primarily
                     for salaries, vehicles, and equipment. It returned about $2.2 m illion in
                     unspent funds, proceedsfrom vehicle sales, and earned interest to AID


                     3The National Guard was the militia for the Somoza government, which held power until the current
                     government, headed by the Sandtnistss, took over in 1979.
                     4A special agreement was to be reached allowing the Commission to continue activities. Although an
                     agreement was never fmaliied, Commission officials stated, in December 1989, that the government
                     has indicated its willingness to allow the Commission to operate by releasing items purchased by the
                     Commission from customs and waiving certain fees.
                     “In August 1989, the presidents met and approved a plan for the demobilization of the Resistance and
                     voluntary repatriation or regional relocation of Resistance members, families, and supporters and
                     other Nicaraguan refugees in Central America.



                     Page 3                                                         GAO/NSIAD4085        Central America
                      and had a remaining balance of about $92,000. Table I.1 in appendix I
                      provides a detailed breakdown of fund transfers and expenditures.

                      The Cardinal established offices in Washington, DC., and Nicaragua-in
High Staff Salaries   Managua and the seven cease-firezones-and hired advisers, bishops,
were Adjusted         observers, and support staff to carry out verification duties. Someof the
                      monthly salary levels were set high for Nicaragua, and in two cases,the
                      organization paid salaries that exceededthe monthly limit established
                      by AID guidelines for payment of contractor salaries.
                      Through June 30,1989, the Cardinal’s organization expended about
                      $660,000, or 41 percent of its total expensesfor salary payments. The
                      organization paid monthly salary rate@to the cease-fire zone and Mana-
                      gua-basedobservers and to advisers and bishops on the Managua staff
                      in amounts ranging from $1,000 to $9,000 between April and June 1988.

                      These salaries were high in a country with an average monthly income
                      of about $33. In July 1988, AID questioned the salary levels after receiv-
                      ing the organization’s financial statement for the period May 31 through
                      June 30,1988, and requested an independent audit. Price Waterhouse, a
                      public accounting firm, completed a preliminary review in September
                      1988 and questioned salary payments totaling $29,700 for two advis-
                      ers-one in Managua and one in Washington, D.C.- becausethe
                      monthly rate paid exceededthe $6,900 limit established for contractors
                      by AID guidelines. Officials from the Cardinal’s organization and AID
                      stated that the Cardinal’s staff was not familiar with these guidelines
                      and therefore included travel and per diem expensesin salary
                      payments.
                      The Cardinal’s organization subsequently reduced the two advisers’
                      monthly salaries to a level below $6,900 in July 1988 to recoup overpay-
                      ment from prior months and began paying them $5,900 per month in
                      August 1988. The organization also decreasedsalaries for the other
                      advisers, bishops, and observers.




                      “Salary figures reflect the salary rate rather than the actual amount paid per month because some
                      employees worked for only a portion of a given month or for only a portion of the period from April
                      through June 1988.



                      Page 4                                                          GAO/NSIAB9O5~       CentralAmerica
   .




                       The Cardinal’s organization purchased 19 vehicles and 17 electrical gen-
Sotie Unused           erators at a total cost of about $399,000. However, the items were never
Equipment Remains in   used becausethe Nicaraguan government impounded them in June
Storage                1988. In February 1989, the government allowed the Cardinal’s organi-
                       zation to sell the vehicles. As of August 1989, the Commissionhad sold
                       13 vehicles at a total loss of about $17,000. By September 1989, the gov-
                       ernment had released the remaining vehicles and the generators.
                       According to the Cardinal’s staff, these items are now being stored in
                       Managua pending possible use.

                       The OASand Cardinal’s organization were also unable to use certain
                       items due to curtailment of activities resulting from political events dur-
                       ing 1988. Of six vehicles purchased at a total cost of $98,000, the QAS
                       was able to use only one. The 0~s sold two vehicles for about $600 less
                       than originally paid, and the remaining three were stored in Panama.
                       These three vehicles are now in Nicaragua for use in election monitoring
                       activities. The OASand the Cardinal’s organization also purchased items
                       such as a radio communications system and computers that remain in
                       storage in Washington, Miami, and Managua.
                       In some cases,office equipment purchased by the Cardinal’s organiza-
                       tion for the seven zoneswas not used to its fullest extent. For example,
                       one zone did not have telephone service or electricity, rendering a fac-
                       simile machine and electrical equipment useless.If the generators had
                       been available, the zone personnel could have made use of the equip-
                       ment. An air conditioner in another zone was not used becausethe cli-
                       mate is fairly moderate, and a refrigerator was not needed because
                       another was available.

                       As of January 1990, the Commissionwas still operating at a reduced
Future Role of the     level. The Cardinal’s organization may have a role in monitoring the
Commission             treatment of Resistancemembers and supporters who decide to repatri-
                       ate to Nicaragua under the Central American presidents’August 1989
                       plan. However, as of January 1990, the Resistanceremained intact. In
                       June 1989, the OASreceived $1.5 million under Public Law 101-45 to
                       monitor activities leading up to elections to be held in Nicaragua in Feb-
                       ruary 1990. AID supplemented this funding in January 1990 with $2 mil-
                       lion from remaining Commissionfunds authorized under Public Law
                       100-276.Thus, the w is continuing to monitor election activities as part
                       of its Commissionresponsibilities.




                       Page 5                                         GAO/NSIALHO85   Central America
The results of our review are discussedin more detail in appendix I.
Appendix II describesour objectives, scope,and methodology.
We did not request that AID provide us with formal written commentson
a draft of this report, but we did obtain oral commentsfrom its task
force officials on the matters discussed.We also discussedthe applicable
portions of the report with officials of the QASand representatives from
the Cardinal’s organization. The report has been revised to reflect the
commentsmade by each of these parties.
Copies of this report will be sent to interested congressionalcommittees;
the Administrator of AID; the Secretary of State; and the Director, Office
of Managementand Budget. The report was prepared under the direc-
tion of Joseph E. Kelley, Director, Security and International Relations
Issues.He can be reached on (202) 275-4128 if you or your staff have
any questions.




Charles A. Bowsher
Comptroller General
of the United States




Page 6                                        GAO/NSIADM-fJ5   Central America
Y




    Page 7   GAO/NSIAD-90435 Central America
Contents


                     A

utter                                                                                                1
  /
Appendix I                                                                                         10
Activities of the        Commission Activities and Impact of Political Events                      12
                         Fund Transfers and Expenditures                                           13
Verification             OASActivities                                                             15
C&mission                Activities of the Cardinal’s Organization                                 17
                         Future Role of the Commission                                             23

Abpendix II                                                                                        25
Objectives, Scope, and
lk$ethodology
Tkbles                   Table 1.1: Funding and Expenditures of the Verification                   14
                             Commission From March 31, 1988, Through June 30,
                             1989
                         Table 1.2:OAS Net Expenditures for Verification                            16
                             Commission Activities From March 31, 1988,
                             Through June 30,1989
                         Table 1.3:Expenditures of the Cardinal’s Organization for                  18
                             Verification Commission Activities From March 3 1,
                             1988, Through June 30,1989

Figures                  Figure I. 1: Map of Nicaragua Showing the Seven Cease-                     10
                             Fire Zones Established by the Sapoa Agreement
                         Figure 1.2: Vehicles Impounded in Managua Dealerships                     22
                             (May 1988)




                         Abbreviations

                         AID       Agency for International Development
                         OAS       Organization of American States


                         Page 8                                       GAO/NSIAD90-65   Central America
Page 9   GAO/NSLAD-9065 Central America
Appendix I

&tivities of the Verification Commission


                                         On March 23,1988, the government of Nicaragua and the Nicaraguan
                                         Resistancesigned a preliminary cease-fire agreement at Sapoa, Nicara-
                                         gua. In addition to cessationof hostilities, the SapoaAgreement called
                                         for relocation of Resistanceforces to seven zones(SeeFigure I. 1) inside
                                         Nicaragua where they would receive humanitarian assistance;amnesty
                                         for political prisoners; peaceful reintegration and full political, eco-
                                         nomic, and social participation for those who had left Nicaragua; and
                                         freedom of expression. It also established the Verification Commission,
                                         to be headed by Cardinal Obando y Bravo, head of the Catholic Church
                                         in Nicaragua, and Joao Baena Soares,Secretary General of the Organiza-
                                         tion of American States (OAS), to verify compliance with all aspectsof
                                         the agreement.
Flguro 1.1: Map of Nicaragua Showing the Seven Ceare-Fire Zones Established by the Sapoa Agreement




                              HONDURAS                                                        D




                    PACIFIC

                      OCEAN
                                                                                CARIBBEAN




                                                       COSTA         RICA
                                                                                   \




                                         Page IO                                            GAO/NSIAD4086   Central America
    Appendix I
    Activitlee of the Verifkation   Commbeion




    Public Law loo-276 transferred $10 m illion of unobligated fiscal year
    1986 DefenseDepartment funds to the Agency for International Devel-
    opment (AID) for periodic payments to support Commissionactivities.
    These funds were to remain available until expended. The AID Adminis-
    trator established a Task Force on Humanitarian Assistanceto imple-
    ment this assistanceand other programs funded under the legislation.

    In April 1988, the W A requested
                           S         that AID advance the entire $10 m illion
    to the w treasurer to support Commissionactivities. Before agreeing to
    transfer funds, the AID Task Force Director requested that the 0~s Secre-
    tary General and the Cardinal submit a program description and budget.
    The OASsubmitted this information on behalf of the Commissionin early
    May 1988. By the end of May 1988, the AID director had approved the
    submission,signed a cooperative agreementwith representatives of the
    OASSecretary General and the Cardinal, and began providing funds in
    periodic payments. As of June 30,1989, AID had advanced about
    $4.1 m illion to the Commission.

    Under the cooperative agreement,the Commissionwas responsible for
    establishing a system in the seven zonesto verify
.   the cease-fire and relocation of Resistanceforces;
.   the delivery of humanitarian aid to Resistanceforces through neutral
    organizations;
.   freedom of expression in Nicaragua;
.   Resistanceparticipation in the National Dialogue, a forum for talks
    between the government of Nicaragua and the civic opposition;
.   guarantees of political, social, and economicrights for expatriates who
    had returned to Nicaragua, including assurancesagainst persecution;
.   participation in Central American Parliament elections and Nicaraguan
    municipal and national elections by Nicaraguans who had peacefully
    integrated; and
.   compliancewith any subsequent agreementsbetween the Nicaraguan
    government and the Resistance.
    In addition, the OAS Secretary General was responsible for facilitating
    and monitoring the amnesty process for political prisoners, including
    membersof the National Guard, and verifying their release.




    Page 11                                        GAO/NSIAD-90-M Central America
                           Appendix I
                           AcUvitiem of the Veriflcntion   Chmmiseion




  1


                           Beginning in March 1988, the OASand the Cardinal’s organization began
C&n-missionActivities      hiring staff, purchasing equipment, and conducting verification activi-
arid Impact of Political   ties. The Cardinal’s organization primarily investigated and reported on
Eients-                    alleged cease-fire and human rights violations by the Nicaraguan gov-
                           ernment and the Resistance.On behalf of the OASSecretary General, the
                           Inter-American Commissionon Human Rights studied and reported on
                           amnesty eligibility and due process for former membersof the National
                           Guard. Both the cw Secretary General and the Cardinal, or their repre-
                           sentatives, attended negotiating meetings between the Nicaraguan gov-
                           ernment and the Resistanceheld from March through June 1988 and in
                           September 1988.
                           However, shortly after the Commissionbecameoperational, political
                           events in Nicaragua prevented it from fully carrying out its duties. On
                           June 9,1988, negotiations between the Resistanceand the Nicaraguan
                           government on the terms of the SapoaAgreement broke down, and the
                           government withdrew its support of the Commission.The cease-fire
                           zonesdid not becomeoperational, and most Resistancemembersand
                           their fam ilies went to Honduras to receive humanitarian assistancefrom
                           AID.’ In August 1988, the Nicaraguan government proposed lim iting the
                           Commission’sduties to verifying cease-fire violations and issuing state-
                           ments on negotiations that had taken place.

                           On October 6, 1988, the Nicaraguan government decreed that any
                           Nicaraguans receiving funds under Public Law loo-276 were guilty of
                           treason and subject to 4 to 12 years in prison2 Due to the decree and the
                           low level of verification activity, the Cardinal reduced his staff to a core
                           level. Since that time, Commissionactivities have been lim ited to peri-
                           odic cease-fire investigations, receiving and forwarding to the Nicara-
                           guan government allegations of human rights violations, verification of
                           the March 1989 release of former National Guard members,and discus-
                           sions with AID, the Nicaraguan government and the Nicaraguan Resis-
                           tance concerning the Commission’srole in carrying out a plan devised by
                           the five Central American presidents in August 1989 to demobilize and

                           ‘AID began delivering humanltarlan assistance to Resistance members in Honduras in mid-April 1988
                           while the Resistance and Nicaraguan government were attempting to reach agreement on operation
                           of the cease-fire zones. After negotiations broke down, AID continued to deliver assistance in
                           Honduras.
                           *According to Commission officials, this decree stipulated that the Commission could continue to use
                           P.L. loo-276 funds upon reaching agreement with the Nicaraguan government on allowable activities.
                           Although no agreement was reached, these officials stated, in December 1989, that the government
                           has indicated its willingness to allow the Commission to operate by releasing items purchased by the
                           Commission from customs and waiving certain fees.



                           Page 12                                                        GAO/NSIAtHO-65 Central America
                     Appendix I
                     Acthititm of the Verlf’ication C%mmbeion




                     repatriate Resistancemembers.3In November 1989, the Cardinal and the
                     Secretary General witnessed negotiations between the Nicaraguan gov-
                     ernment and the Resistancein New York and Washington, D.C.


Fued Transfers and   the O.Utreasurer, with a designated amount to be further disbursed to
Expenditures         the Cardinal’s organization. The amounts transferred were based on
                     expensesincurred in the previous month and a proposed budget to cover
                     projected expensesfor the following month.
                     As of June 30,1989, AID had advanced about $4 m illion to the OASand
                     about $111,000 directly to the Cardinal’s organizationP The OASdis-
                     bursed about $1.87 m illion to the Cardinal’s organization, retained about
                     $2.1 m illion, and earned about $107,000 in interest. Total funds availa-
                     ble to the Commissiontotaled about $4.2 m illion. Of these funds, the
                     Commissionspent about $1.9 m illion; returned about $2.2 m illion in
                     unspent funds, proceedsfrom vehicle sales and earned interest to AID”;
                     and had a remaining balance of about $92,000.

                     Table I. 1 summarizesthe Commission’sfunding and expenditures from
                     March 31,1988, through June 30,1989.




                     aIn August 1989, the presidents met and approved a plan for the demobilization of the Resistance and
                     voluntary repatriation or regional relocation of Resistance members, families, and supporters, and
                     other Nicaraguan refugees in Central America.
                     4Accordlng to an AID official, AID began advancing funds directly to the Cardinal’s organization in
                     March 1989, after Commlssion activities had been curtalled and the OAS had experienced severe staff
                     cutbacks.
                     “Of these funds, AID returned about $102,000 ln interest earned by the OAS to the U.S. Treasury and
                     credited about $2.1 million in unspent funds and proceeds from vehicle sales to the AID account for
                     the Commission.



                     Page 13                                                        GAO/NSIALMO86 Central America
                                        Appendix I
                                        Activitkm of the Verifkation   C-ommhlon




Tab 1.1: Funding and Expenditures of
the erlflcatlon Commission From March   Funding                                                                                       Amount
31, : 988, Through June 30,1989         flAS
                                        -.   ..s                                                                                 $2.125085
                                                                                                                                  -       ~I



                                        Cardinal                                                                                  1 ,960,496a
                                        Interest earned
                                                 -- -- I0A.S)
                                                        \- -,                                                                        106,757
                                             Total                                                                               $4,212,330

                                        Expenditures
                                        OAS
                                          Expenditures                                                                                 359,925b
                                        Returned    to AID                                                                            1856,765
                                             Total                                                                               $2,216,710

                                        Cardinal
                                          Expenditures                                                                                1,567,61 7b
                                          Returned to AID                                                                               335,561
                                          Total                                                                                  $1,903,178
                                        Total Exwnditures                                                                         $4,119,=

                                        Ending balance                                                                                 $92,450
                                        %cIudes $1,869,854 disbursed by the OAS and $110,642 transferred directly from AID
                                        bTables 1.2and I.3 provide a further breakdown of expenditures.



Accounting and Audit                    The cooperative agreementrequired the QASSecretary General and the
Requirements                            Cardinal’s organization to maintain accounting records, report periodi-
                                        cally to AID on the use of program funds, and hire an independent audi-
                                        tor. The QASBoard of External Auditors audited QASexpenditures for
                                        Commissionactivities as part of its annual financial audit and issued a
                                        financial statement that reflected expenditures as of December31, 1988.
                                        In June 1988, the Cardinal’s organization contracted with Raffa Associ-
                                        ates, a public accounting firm , to maintain accounting records. At AID’S
                                        request, the organization contracted with Price Waterhouse, also a pub-
                                        lic accounting firm , in August 1988 to conduct an independent concur-
                                        rent financial and compliance audit.

                                        As of January 1990, Price Waterhouse had issued quarterly reports on
                                        expenditures incurred from June 30,1988, through March 31,1989, and
                                        had found no material weaknessesin the organization’s internal
                                        accounting system, However, the reports pointed out the need for more
                                        detailed supporting documentation for purchases and payments made
                                        by the Cardinal’s organization. According to the Raffa accountant, the


                                        Page 14                                                           GAO/NSIAD9086      Central America
I




                            Appendix I
                            Activities of the Verification C o n n n l s s i o n




                            organizatio nh a s s u b s e q u e n tlyi m p r o v e dits submissiono f s u p p o r tin g
                            d o c u m e n ta tio n .


    A IDO versight          A ID Task Forceo fficials said th a t their role in administeringC o m m ission
                            fu n d s h a s b e e nto review a n d a p p r o v eth e p r o g r a mdescriptiona n d sub-
                            s e q u e n pt r o p o s e db u d g e tsa n d to transfer fu n d s w h e n n e e d e dT. h e y
                            stated th a t their review o f e x p e n d i turesh a s b e e nlim ite d to ensuring
                            th a t fu n d e d activities w e r e relatedto th e verification process.In their
                            view, a d d i tio n a linvolvementin th e C o m m ission’s           o p e r a tio n sis n o t
                            appropriateb e c a u s eth e C o m m issionis a n e u tral organizatio na n d
                            shouldn o t b e influencedby a n y g o v e r n m e n t.

       /
                            T h e O A SS e c r e taryG e n e r a relied
                                                                  l       primarily o n his 0 ~ sstaff in W a s h i n g -
    O A SA ctivities        to n , D .C.,a n d two a d d i tio n a le m p l o y e e to
                                                                                    s p e r fo r m C o m m issiond u ties.
                            T h e s epersonstraveledperiodicallyto N i c a r a g u a In           . a d d i tio n ,1 6 per-
                            sonsfrom th e O A SIn te r - A m e r i c a nC o m m issiono n H u m a nR i g h tstraveled
                            to N i c a r a g u ain th e springo f 1 9 8 8to evaluateth e a m n e s tyeligibility o f
                            prisonersw h o w e r e m e m b e r so f th e fo r m e r r e g i m e ’sN a tio n a lG u a r d .
                            T h e S e c r e taryG e n e r a al n d his staff a tte n d e dn e g o tia tin gm e e tin g s
                            b e tweenth e g o v e r n m e not f N i c a r a g u aa n d th e Resistancefrom M a r c h
                            th r o u g h J u n e 1 9 8 8a n d in S e p te m b e 1r 9 8 8in C e n tralA m e r i c a .In M a r c h
                            1 9 8 9 ,th e y witnessedth e p a r d o no f 1 ,8 9 4fo r m e r N a tio n a lG u a r dm e m -
                            bers a n d th e releaseo f 1 ,6 4 9m e m b e r so f this g r o u pfrom prison in
                            Nicaragua.


    E x p e n d itu r e s   A s o f J u n e 3 0 , 1 9 8 9 ,th e 0 ~ sh a d receiveda to tal i n c o m eo f $ 4 .1 m illion
                            to carry o u t C o m m issionactivities, includinga b o u t$ 4 m illion in fu n d s
                            transferredfrom A ID a n d a b o u t$ 1 1 0 ,0 0 0in interest e a r n e do n th e trans-
                            ferred fu n d s . O f th e $ 4 .1 m illion, Q A Sdisburseda b o u t$ 1 .8 7m illion to
                            th e Cardinal,e x p e n d e da b o u t$ 3 6 0 ,0 0 0a, n d retu r n e da b o u t$ 1 .8 6m il-
                            lion to A ID. T h e Q A eSx p e n d e dfu n d s primarily for salaries,travel,”equip-
                            m e n t, a n d vehicles.T h e fu n d s retu r n e dto A ID includeda b o u t
                            $ 1 .7 5m illion in u n s p e n tfu n d s in February 1 9 8 9a n d a b o u t$ 1 0 2 ,0 0 0in
                            interest e a r n e dth r o u g h January 1 9 8 9 .



                            “T h e salaries of r e g u l a r O A Sp e r s o n n e la n d the travel e x p e n s e si n c u r r e d b y the SecretaryG e n e r a l
                            w e r e not c h a r g e dto this grant. A c c o r d i n g to a n O A Sofficial, these f u n d i n g decisionsw e r e m a d e in
                            o r d e r to maintain i n d e p e n d e n c efrom the unilateral n a t u r e of P L l o o - 2 7 6 funds.



                            Page 16                                                                               G A O / N S I A D - 9 0 6 8 Central A m e r i c a




                                                                                         :,
                                          Appendix I
                                          Actlvkies of the Verification   Commiesion




                                          Table I.2 shows net expenditures incurred by OASfrom March 31, 1988,
                                          through June 30,1989.
Tab& 1.2: OAS Net Expenditures for
Verifikation Commission Actlvitiea From   Exoenditure                                                         Amount
March 31,1988, Through June 30,1989       Inter-American Commission
                                             Salaries                                                           $4,819
                                             International travel                                               30,537
                                             Eaubment -                                                          1,234
                                            Total                                                             $36,590

                                          Secretary General’s Staff
                                            Salaries                                                           $16,972
                                            International travel                                                87,460
                                            Vehicles                                                            68,299
                                            Equipment                                                          118,556
                                            Total                                                            $291,287

                                          Administrative    swoort                                              32,048

                                          Grand     Total                                                    $359.925




Some Vehicles and                         The OAS purchased six vehicles and various equipment, such as a radio
Equipment Could Not Be                    communicationssystem, cameras,and a generator, for use in conducting
                                          verification activities in Nicaragua. Someof these items could not be
Used                                      used due to the low level of verification activity and were either sold or
                                          stored pending possible use for OASelection monitoring activities.
                                          Of the six vehicles, the OASsold two back to a Panamaniandealer for a
                                          total of $28,600-about $600 less than originally paid becausethe OAS
                                          had to pay customs fees and storage and handling costs. One of the
                                          remaining vehicles was sent to Managua and has been used by OASper-
                                          sonnel for Commissionbusiness.The other three had been stored at the
                                          U.S. Southern Commandin Panamabut are now in country and are
                                          being used for 0~s election monitoring activities.
                                          Part of the radio system is stored in Washington, D.C., and part is being
                                          used in Nicaragua. Other items are in Washington and Managua. Accord-
                                          ing to OASofficials, they are able to use someof these items for election
                    Y
                                          monitoring activities in Nicaragua.




                                          Page 16                                       GAO/NSLUMO-65 Central America
                    Appendix I
                    Actlvitiee   of the Verification   Connnid~n




                    Beginning in March 1988, the Cardinal established offices in Washing-
Acqivities of the   ton, DC., and Managua, Nicaragua; hired field observers; and purchased
Caddinal’s          equipment and vehicles for use in the seven cease-fire zones.The Wash-
Orgjanization       ington office employed three advisers to coordinate on behalf of the Car-
                    dinal with AID, the State Department, and the QASand to conduct public
                    affairs. These advisers also hired the accounting services on behalf of
                    the Cardinal. Two additional advisers were employed in M iam i to over-
   I                see equipment purchases and to perform other administrative duties.
                    In May 1988, the Cardinal opened an office in Managua and by June 30,
                    1988, had hired a full-time staff of 83 employeesin Nicaragua, including
                    23 at the Managua office and 60 in the cease-firezones.The Managua
                    staff included three advisers, five observers, and three bishops responsi-
                    ble for oversight of verification activities in the zonesand 12 support
                    personnel such as secretaries,security guards, and drivers. In addition,
                    the office employed three part-time instructors to train observers in
                    investigating and documenting cease-fire and human rights violations.
                    Each of the seven zoneswas staffed by a coordinating observer, who
                    supervised between 3 and 14 senior observers and “apoyos,” or support-
                    ing observers. The apoyos were natives of the area and reported alleged
                    cease-fire and human rights violations. The coordinator then directed
                    the senior observers, who were often legal professionals with human
                    rights experience, to investigate the claims. Each zone’s coordinator pre-
                    pared periodic reports on the results of the investigations and submitted
                    them to the Cardinal and the State Department. In addition to written
                    reports, several video reports were issued.

                    Since the Nicaraguan government’s October 1988 decreethat prohibited
                    the use of Public Law loo-276 funds, the Cardinal’s organization has
                    retained only a few employees.As of October 1988, the bishops, observ-
                    ers, and M iam i advisers were no longer employed. As of June 30, 1989,
                    the Managua staff consisted of two advisers, a bookkeeper, two secre-
                    taries, and a driver. Their work is lim ited to periodically reporting infor-
                    mation to the Washington staff on cease-fireviolations and the status of
                    talks between the Cardinal and the Nicaraguan government on future
                    Commissionwork.


Expenditures-       As of June 30, 1989, the Cardinal’s organization had received a total
                    income of about $1.9 m illion to carry out Commissionactivities, includ-
                    ing $1.87 m illion disbursed by the QAStreasurer and about $111,000
                    transferred directly from AID. Of these funds, the organization expended


                    Page 17                                         GAO/NSWLHNIB    Central America
                                            Appends I
                                            Activities of the Verification   Commission




                                            about $1.6 m illion and returned about $336,000 in proceedsfrom vehicle
                                            sales and excessfunds to AID. Expenditures were primarily for salaries
                                            and the purchase or rental of vehicles, generators, and other equipment.
                                            Table I.3 summarizesexpenditures by the Cardinal’s organization from
                                            March 31, 1988, through June 30,1989.
TabI+ 1.3: Expenditures of the Cardinal’s
Org@izstion for Verification Commission     Expenditure                                                          Amount
Activities From March 31,1988, Through      Salaries
Jury 30,1989                                  Advisers                                                           $357,267
                                              Observers                                                           167,303
                                              Bishops                                                              45,420
                                              Support staff                                                        87,738
                                              Instructors                                                           1,900
                                              Total                                                             $659,628

                                            Equipment and vehicles
                                              Office equipment purchase                                          $176,829
                                              Office equipment rental                                               3,446
                                              Vehicle burchase                                                    182,341
                                              Vehicle rental                                                        7,136
                                              Other equipment purchase                                            136,501
                                              Other equipment rental                                                1,450
                                              Total                                                             $507,703

                                            Washington office
                                              Rent                                                                $26,454
                                             Telephone                                                             16,359
                                              Subolies
                                                 II
                                                                                                                    2,558
                                              Printinq                                                              3,605
                                              Newsletter                                                           12,496
                                              Emblover taxes
                                                      I   ,
                                                                                                                   14,967
                                              Miscellaneous                                                         5,167
                                              Total                                                               81,606
                                                                                                              (continued)




                    Y




                                            Page 16                                       GAO/NSIAD9O85   Central America
  \


                                 Appendix I
                                 Activities of the Verlf’lcntion Commission




                                 Expenditure                                                                                    Amount
                                 Managua office                                                                                   I__
                                   Rent                                                                                          $57,500
                                   Telephone                                                                                        1,349
                                   Maintenance                                                                                      2,152
                                   Supplies                                                                                         4,339
                                   Printing                                                                                         2,473
                                   Mules                                                                                            2,122
                                   Miscellaneous                                                                                    4,432
                                   Total                                                                                        $74,367
                                 Accounting/legal/ translation services                                                          144,234
                                 Travel/per diem expense                                                                         100,080

                                 Grand Total                                                                                 $1,507,618



Some Staff Were Paid High As table I.3 indicates, the Cardinal’s organization expended about
Salaries                  $660,000, or 41 percent of its total expensesthrough June 30,1989, for
                          salaries. Monthly salary levels for someemployeesin Nicaragua were
                                 high compared to the average salary paid to a Nicaraguan, and in two
                                 cases,the organization paid salaries that exceededthe monthly limit
                                 established in AID regulations.

                                 The organization paid monthly salary rates to the cease-fire zone and
                                 Managua-basedobservers and to advisers and bishops on the Managua
                                 staff in amounts ranging from $1,000 to $9,000 between April and June
                                 1988. Specifically, the apoyos in the zonesreceived the US. dollar
                                 equivalent of $1,000 per month in Nicaraguan cordobas; all other per-
                                 sonnel received U.S. dollars.7The zone observers received $2,000 per
                                 month, and the five Managua-basedobservers were paid $3,000 per
                                 month. Monthly salaries for the three advisors ranged from $1,800 to
                                 $9,000, and the three bishops received $5,000.
                                 These salaries were high in a country with an average monthly income
                                 of about $33. The Cardinal’s staff explained that the Nicaraguan gov-
                                 ernment had initially intended that all salaries paid in US. dollars be
                                 exchanged for cordobas at the official rate of 13 cordobas to $1. Eco-
                                 nomic indicators at that time predicted inflation and a devaluation of

              Y




                                 7The Cardinal’s staff told us that since the apoyos were native to their remote regions, they would
                                 have little need for dollars. On the other hand, many of the senior observers often visited their fami-
                                 lies in Managua, where U.S. dollars are required to purchase many commodities.



                                 Page 19                                                          GAO/NSIAD-9985       Ckntrd America
Appendix I
Activities of the Verification   Commission




the cordoba; therefore, they believed that these salary levels were nec-
essary to maintain adequate buying power. However, the government
did not enact the currency exchangeprogram , and the organization con-
tinued to pay salaries in US. dollars.
In July 1988, AID officials questioned the level of salary payments after
receiving the organization’s statement of expensesfor May 31 through
June 30, 1988, and its budget request for July 1988. At AID’S request, the
Cardinal’s organization hired Price Waterhouse in August 1988 to audit
the statement and subsequentexpenditures. The organization discontin-
ued salary payments until after Price Waterhouse auditors completed a
prelim inary review in September 1988.
In its review, Price Waterhousequestioned salary payments totaling
$29,700,8including salaries for one Managua adviser and a Washington.
D.C., adviser who had been paid at a rate of $9,000 per month in May
and June 1988. These salaries exceededthe $5,900 lim it established in
AID Handbook 14 for contractor salaries. The Cardinal’s staff told us
that prior to the Price Waterhouse audit, they had been unfam iliar with
AID guidelines regarding salary lim its and included travel and per diem
expensesin salary payments.

The Cardinal’s organization subsequently reduced the two advisers’
monthly salaries for the month of July 1988 to a level below $5,900 to
recoup overpayment from prior months and began paying them at a rate
of $5,900 per month for August and subsequentmonths. The organiza-
tion also reduced salaries for the three bishops and the zone and Mana-
gua-basedobservers. For July 1988 and subsequentmonths, the bishops
received $2,500 per month, and the zone observers were paid only for
days worked. By September 1988, their monthly salaries ranged from
$23 to $1,300.
The salary rates for the Managua-basedobservers were reduced to
$1,500 per month beginning in July 1988 for two observers and in Sep-
tember 1988 for the other three. The three bishops were no longer
employed after September 1988, and no observers were employed after
October 1988.



“Price Waterhouse also questioned $13,346 for travel, telephone, and other expenses because of inad-
equate documentation. In response, the Cardinal’s organization submitted documentation, offset disal-
lowed costs against subsequent salary payments, or obtained reimbursement for those costs.



Page 20                                                        GAO/NSIAD90-55 Central America
                        Appendix I
                                 of the Verification
                        Actititiea                     Gmmbsion




                        These reductions significantly decreasedoverall salary expenses.In
                        June 1988, the total amount expended for salaries was $156,846. This
                        figure dropped to $98,413 in July and $39,121 in October 1988. From
                        January through June 1989, the monthly salary expensefor the entire
                        Cardinal’s organization averaged about $22,760.


Some Equipment          From April through September1988, the Cardinal’s organization pur-
Pu4chasedCould Not Be   chased someitems for the offices in the cease-firezonesthat could not
                        be used becausethey had been impounded by the Nicaraguan govern-
Us$d                    ment, conditions in Nicaragua curtailed Commissionactivities, or power
                        or other equipment necessaryfor operation was lacking. Also, some
  I                     equipment was not used becauseit was excessor inappropriate for
                        existing conditions.
                        For example, the organization purchased 19 vehicles and 17 generators
                        at a total cost of about $399,000. The generators were needed because
                        electricity is periodically cut off in Nicaragua, and one zone does not
                        have electricity at all. However, the items were never used because,
                        after withdrawing support of the Commissionin June 1988, the Nicara-
                        guan government impounded the vehicles in car dealerships and the
                        generators in a government warehouse.
                        In February 1989, the government allowed the Cardinal’s organization
                        to sell the vehicles but would not releasethem for Commissionuse. As of
                        August 31,1989, the organization had sold 13 vehicles to the Managua
                        dealers from which they were purchased and returned $171,866 to AID.
                        The Cardinal’s staff attempted to avoid a loss on the vehicle sales;how-
                        ever, twelve of these vehicles were sold for about 10 percent less than
                        their original cost, for a loss of about $17,000. The organization decided
                        to retain the remaining six vehicles for possible future use. The Nicara-
                        guan government releasedthese vehicles in September 1989 and the
                        generators in August 1989 and waived storage fees. According to the
                        Cardinal’s staff, the vehicles and generators are now being stored in
                        Managua.




                        Page 21                                       GAO/NSIAD-90-66 Central America
                                    Appendix I
                                    Activities of the Verification Commission




FiguCe 1.2: Vehicles Impounded in
Msnbgua Dealsnhipr (May 1988)




                                    The organization also purchased equipment that could not be used due
                                    to the curtailment of verification activities resulting from political
                                    events during 1988. Of 13 computers purchased at a cost of about
                                    $32,000 for use in Washington,D.C., Managua,and the cease-firezones,
                                    only four could be used-two in the Washington office and two in the
                                    Managua office. According to the Cardinal’s staff, the remaining nine
                                    are now being stored in M iam i, pending possible use.
                                    In somecases,cease-firezone personnel could not use the equipment to
                                    its fullest extent. For example, one zone near the Atlantic Coast did not
                                    have telephone service or electricity, rendering the facsimile machine
                                    and other equipment useless.If the generators had been available, zone
                                    personnel could have made use of the equipment. The coordinating
                                    observer of another zone told us that he did not use the air conditioner
                                    becausethe climate in that zone is fairly moderate, and he did not use
                                    the refrigerator becauseanother was available. He stated that he rarely
                                    used the facsimile machine becausethe telephone lines are inadequate
                                    and that one videocamerarather than two would probably have been
                                    sufficient. The Cardinal’s staff in Managua stated that offices in the
                                    other five zonesalso had someequipment that was not used.
                                    Officials from the Cardinal’s organization acknowledgedthat they used
                                    poor judgment regarding someequipment purchasesand salary levels.
                                    They attributed their decisionsto enthusiasmin getting the program


                                    Page 22                                       GAO/NSIAIWO%S Central America
.

                         Appendix I
                         Activities of the Verlflcation   Commlsdon




                         started, a desire to be ready as soon as the cease-fire zonesbecameoper-
                         ational, and uncertainty over how these zoneswould operate. Further,
                         the changing political climate made it difficult to assessthe type and
                         amount of equipment that would be needed.Although talks between the
                         Resistanceand the Nicaraguan government broke down in June 1988,
                         the organization continued to purchase equipment in anticipation that
                         future talks might result in opening of the zonesand additional verifica-
                         tion activities. The two parties met again in Guatemala on September
                         1988 but did not reach agreement.
                         An AID official stated that AID was aware of the type of equipment being
                         purchased and that equipment had been impounded by the Nicaraguan
                         government; however, AID was not aware that some equipment could not
                         be used. AID'S position is that Commissionofficials are responsible for
                         purchasing and other operational decisions and that AID'S role should be
                         limited to reviewing expenditures to determine if they are reasonable.
                         The cooperative agreement does not require AID to approve purchases
                         and other payments before expenditures are incurred.

                         The Commissionis still operating at a reduced level, and its future role
    Future Role of the   is uncertain. The Commissionand the government of Nicaragua have
    Commission           discussedthe possibility of a role for the Cardinal’s organization in car-
                         rying out the Central American presidents’August 1989 plan calling for
                         demobilization, relocation, or repatriation of Resistancemembers.Also,
                         according to the Cardinal’s staff, the State Department submitted a pro-
                         posal in September 1989 to the Cardinal to use his organization to moni-
                         tor alleged human rights violations against Resistancemembers and
                         supporters who decide to repatriate, if the Nicaraguan government
                         allows such verification activity to take place.
                         Although the presidents’plan called for disbanding of the Resistanceby
                         December8,1989, as of February 1990, the Resistanceremained intact.
                         Thus, the role of the Cardinal’s organization is uncertain. Although
                         observers previously employed by the organization have not been work-
                         ing since October 1988, the Cardinal’s staff believes that they could
                         quickly resume their duties. In addition, much of the equipment pur-
                         chased for the zonesremains in Nicaragua and is thus available. AID has
                         elected to defer any decisions regarding disposition of the equipment,
                         pending the outcome of any decisions to demobilize and repatriate the
                         Resistance.




                         Page 23                                       GAO/NSIALHO86   Central America
                                                                                                     I        -




Appendix I
Activities of the Verification C h n m i s e i o n




TheO A S    is currently m o n i toringactivities leadingu p to electionsto b e
h e l d in N i c a r a g u ain February 1 9 9 0 .PublicL a w 1 0 1 - 4 5e, n a c te do n J u n e
3 0 , 1 9 8 9 ,a u thorized$ 1 .6 m illion for th e w to m o n i tor election-related
activities. T o s u p p l e m e nthist fu n d i n g ,O A S
                                                         r e q u e s te dA ID to provide
$ 2 m illion from C o m m issionfu n d s a u thorizedu n d e rPublicL a w lO O -
2 7 6 .In January 1 9 9 0 ,A ID transferredth e s efu n d s to th e O A Sa,n d th e O A S
is c o n tin u i n gth e m o n i toringactivity as p a r t o f its C o m m ission
responsibilities.




Page 24                                                    G A O / N S I A D - 9 0 4 %Central A m e r i c a
’ Appendix II

  Ol$jectives,Scope,and Methodology


                Public Law loo-276 required GAO to independently audit funds provided
                to support the Verification Commission,Our objectives were to examine
                and report on the use of funds expended by the Commission.We con-
                ducted our review at AID, OAS,and offices of the Cardinal’s organization,
                Raffa Associates, and Price Waterhouse in Washington, D.C. In Nicara-
                gua, we met with U.S. Embassy officials and Cardinal Obando y Bravo
                and his staff in Managua and visited the Cardinal’s office located in La
                Fonsecain the Chontales province.

                At each location, we interviewed knowledgeable officials and reviewed
                pertinent documents, including the Sapoa agreement,accounting
                records, financial statements, audit reports, and invoices. We also
                observed the use of vehicles and equipment by the Cardinal’s organiza-
                tion in Managua and La Fonseca.
                We performed our review between April 1988 and October 1989 in
                accordancewith generally accepted auditing standards.




  (489781)      Page 25                                       GAO/NSL4IbfM-66   Central   America
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