AID"s management of International Executive Service Corps grants

Audit report covers FY"s 1983-84 and is based on interviews with A.I.D. and IESC officials and analyses of internal control systems related to grant management and grantee performance. Although IESC"s compliance with the grant agreement has been adequate, the agreement itself fails to address important matters concerning the use of A.I.D. funds. Specifically, reserve funds maintained by IESC - totaling $2.2 million as of 12/31/83 - are excessive to the organization"s needs. Since A.I.D. has always been IESC"s principal financial benefactor, most of these reserves have apparently accumulated as a direct or indirect result of previous A.I.D. grants. The reserves are equivalent to a minimum of 58 days of budgeted 1983 expenditures, far in excess of the 30-day cash advance standard set by the U.S. Treasury. IESC has no need to maintain excessive cash balances since under the grant agreement a Federal Reserve Letter of Credit allows funds to be drawn immediately. Some $700,000 of the IESC reserve funds could be applied to additional programmatic uses, or alternatively, used to reduce future A.I.D. support. Moreover, A.I.D. has minimal control over IESC"s use of reserve funds (some $1 million was spent on furniture and leasehold agreements connected with the recent relocation of IESC headquarters). The grant agreement also allows IESC to use surplus income for non-AID activities or, as it has done, to increase its reserves. A.I.D. management and monitoring of IESC performance has been inadequate because the present reporting system - hundreds of one-page reports on individual IESC projects - has not provided a means of assessing overall progress against grant objectives. During the audit, IESC initiated needed dialogue with A.I.D. regarding reporting requirements. It is recommended that the grant agreement be modified to: (1) limit reserve funds to 30 days of budgeted operating expenses; (2) require A.I.D. approval for the use of reserve funds (including surplus income and large capital expenditures); and (3) require IESC to submit quarterly performance reports, including case studies.