Audit of Rapti Zone rural area development project in Nepal

Audit covers the period 8/80-6/86 and is based on document review, inspection of project-funded activities, and interviews with USAID/N, Government of Nepal (GON), and contractor (Planning and Development Collaborative International) personnel. The project has introduced a variety of development activities into the Rapti Zone, one of the most remote and disadvantaged regions in Nepal, and has helped to improve the lives of the people living there. It has met many of its objectives - although not its major agricultural production objectives - and has built a solid base for future development. USAID/N"s management of the project has been satisfactory. The project"s shortcomings in meeting agricultural targets are due to its overly general, overly optimistic implementation plans, which were not focused strongly on project purposes and did not address the difficulties involved in implementing a complex project in remote hill areas. These plans, the result of unwarranted assumptions, are also the root of implementation delays. Four specific problems have been uncovered. (1) The $9.6 million in local currency provided by USAID/N has been poorly managed by the GON, mainly because of its lack of trained managers. Also, communication among GON field officers has been weak, and the failure of District Treasury Offices to notify the Project Coordinator"s Office when they questioned costs has delayed the release of project funds and led to reimbursements of the questioned costs by USAID/N. (2) The financial statements of the Rapti Zone Branch of the Agricultural Development Bank, which has received $920,000 for loans to small farmers and cooperatives, show a negative current ratio and a rising level of expenses as a percentage of income due to increases in both delinquencies and interest payments. If these problems are not corrected, the credit program may have to be discontinued. (3) Most of the project"s long-term trainees neither served in the Rapti Zone prior to training, nor were assigned to the Zone thereafter. (4) The $642,000 paid by USAID/N for a road assessment survey has not been used by the GON. Recommendations address these problems; USAID/N concurs with all the recommendations except one to request a refund from the GON for the road assessment costs.