Audit of PL-480 Title II program in Morocco

has administered P.L. 480 Title II programs in Morocco since 1957. Under the current program, initiated in FY87, the U.S. agreed to donate some $55 million in food commodities, a portion of which would be monetized to finance program expenditures. Three Government of Morocco (GOM) agencies implement the program under the direction of Catholic Relief Services (CRS). This audit highlighted several major problems. (1) Efforts by CRS to recover claims from the GOM on commodity losses have produced absolutely no results during the last 25 years. Between 6/81-5/89, CRS submitted 260 claims for losses totaling about $1.7 million. Not a penny was recovered on those claims, a significant portion of which resulted from thefts and diversions of commodities. (2) CRS did not make timely deposit of monetization funds in an interest bearing account, resulting in loss of interest income of $109,685. (3) $161,000 of funds were wasted because unnecessary taxes and duties were paid by CRS, despite a long-standing tax exemption agreement with the GOM. (4) GOM controls over storage, distribution, and accounting of Title II commodities needed strengthening. (5) A spousal relationship between the two highest CRS officials in Morocco constitutes a conflict of interest situation. (6) A total lack of financial reporting made it impossible to determine the extent to which the GOM is fulfilling its financial commitment of $58.6 million. The audit also showed that the CRS generally maintained good records of monetization receipts and expenditures. While the P.L. 480 program is a commendable mechanism for food aid in Morocco, it could be considerably strengthened. If no corrective actions are taken, there is a risk of tarnishing the overall program by continuing a virtually institutionalized pattern of unchallenged diversions, losses, and waste of a sizeable portion of program resources. This report therefore makes six recommendations for corrective action. USAID/M"s response to the draft audit report demonstrated a marked reluctance to even acknowledge that any major deficiencies existed. It sharply criticized the audit findings and recommendations, and suggested that 7 of the 9 sections of the report along with related recommendations be eliminated altogether. For example, USAID/M stated that the auditors" use of a S1.7 million figure for unpaid claims is "misleading" and an attempt to "sensationalize" the problem by using an inflated figure which included $700,000 in claims that had already been resolved. However, the $700,000 in claims characterized by the Mission as "resolved" were, in fact, previously written off by CRS as uncollectable, a series of actions in which USAID/M acquiesced. The Mission considered our recommendation that $985,589 of outstanding claims be settled within 90 days or P.L. 480 shipments be suspended as "irresponsible" and stated that it would continue to work with CRS to negotiate claims on a "case-by-case" basis. We note, however, that similar efforts by CRS and USAID/Morocco in the past did not result in recovery of a single claim in 25 years. It appears that the Mission prefers to maintain the status quo rather than take stronger action. We are concerned not only with the lack of recoveries which, in effect, transfers the burden of thefts, losses, and diversions of from the GOM to the U.S. taxpayer. We also believe that the Mission"s failure to aggressively pursue losses relieves the GOM of the need to crack down on such diversions and creates an unfortunate impression of A.I.D."s unwillingness to enforce other areas of compliance. If USAID/M is unable or unwilling to assertively press for recovery of claims, insist on interest-bearing monetization accounts, obtain agreed upon exonerations from duties and taxes, and verify the GOM"s financial contributions, then such provisions should not have been incorporated in the P.L. 480 agreements in the first place. Therefore, we have not acceded to the Mission"s suggestion to eliminate discussions and recommendations regarding most of these issues, but have substantially retained our original positions. The Mission"s response to our draft report is included in its entirety. (Author abstract)