Audit of the Nicaragua assistance program funded by Public Law 101-302 and fiscal year 1991 appropriations as of May 31, 1991

The audit covers the period 5/90-5/91. Due to its emergency nature, the program, which was inaugurated in Washington before A.I.D. had reestablished its presence in Nicaragua after an 8-year absence, has suffered from inadequate Mission controls and the bypassing of normal A.I.D. procedures. Four findings are of particular importance. (1) Price and end use controls, while included as required in the PAAD for the program"s commodity import activities, were omitted in the grant agreement and are not in operation. For example, a check of 23 items purchased under the agreement found that 35% of the suppliers were trading firms which routinely mark up items 10-30% over direct suppliers. Also, evaluations to verify productive end use of purchased items, though provided for in the agreement, were not scheduled. (2) Because the Mission has not yet initiated a systematic monitoring and evaluation system, $8.4 million in ineligible transactions have been financed under the first two cash transfer agreements. The ineligible transactions included such items as chemical compounds, pesticides, brewery machinery and beer bottles, and petroleum used by the military. (3) Due to the economic conditions in Nicaragua, the PAAD excluded the use of cash transfers to generate local currency. Nonetheless, Mission-approved procedures for the generation of local currency have been used in both of the cash transfer programs. As a result, the GON has on deposit the local currency equivalent of $75.6 million in a separate bank account. The Central Bank of Nicaragua has frequently requested Mission approval to disburse local currency from this account; it has also sought the Mission"s official view on the use of $29 million already expended. The Mission has not replied to these requests. (4) The Mission amended its second cash transfer agreement to disburse $20 million to assist the GON in reducing the number of public sector employees. In the view of the auditors, this amendment created a local currency program with accountability requirements. Although Mission officials stated that the agreement was worded in such a manner as to avoid a local currency program, the agreement in fact contains the conditionality and other factors that trigger such a program. While generally agreeing with the recommendations made to address these problems, Mission officials stated that the draft audit failed to provide a realistic picture of the challenge faced by USAID/N in getting assistance up and running in Nicaragua after the election of President Chamorro in 2/90. The Mission"s comments are appended.