Audit of Council of American Development Foundations (Solidarios), grant no. AID/LAC-G-1291

grant by the Council of American Development Foundations (SOLIDARIOS), a Dominican Republic PVO, in a project to provide TA and loans to member organizations. Audit covers the period 8/78-9/87 and is based on document review of SOLIDARIOS and one of its members, and interviews with SOLIDARIOS officials and consultants. During the 9 years of the project, SOLIDARIOS has not instituted an effective maintenance-of-value (MOV) system, nor has AID/W effectively monitored SOLIDARIOS" practices to see that one was implemented. Although some 89% of the funds granted to SOLIDARIOS were redisbursed to members and thereby promoted development, the value of grant monies when loaned out was not sufficiently protected from the effects of individual countries" inflation/devaluation so as to fully accomplish project objectives. Because of this, some $1.1 million is considered unrecoverable even should the loans be repaid. Although various Project Implementation Letters (PIL"s) issued by A.I.D. over several years had mandated implementation of a MOV system, other PIL"s accepted the initial or negligible steps taken by SOLIDARIOS in this direction. SOLIDARIOS thought that it had established an MOV system by including in its loan contracts provisions that: (1) the Central Banks of the countries where its member foundations operate would permit later reconversion to dollars, and (2) a reserve fund would be created (with 1.5% of the interest received) to offset possible loan losses. In practice, the first condition was not respected and the second was insufficient. In 1982 SOLIDARIOS also instituted a loan guaranty mechanism with a U.S. bank in which it deposited funds as security and on which it issued standby letters of credit. However, this mechanism was employed only once. More recent procedures for credit guarantees developed for SOLIDARIOS by a contractor have not yet been implemented. Thus, the recommendation that the grantee institute an effective MOV mechanism remains open. On A.I.D."s side, AID/W never informed USAID/DR of the existence of the grant or of local co-responsibility for administering it, as is accepted procedure, and USAID/DR failed to assign a PVO lead officer to monitor SOLIDARIOS" activities. Such a local contact has now been designated and this part of the recommendation is closed.