Audit of the Panama assistance program funded by Public Law 101-302 as of November 30, 1991

The audit covers the period 5/90-11/91. The program has not been implemented as quickly as planned. It was anticipated that the total program funding of $243.85 million would be disbursed within 9 months -- by 3/91. As of 9/91, however, only $29.85 million (12%) of planned disbursements have been made, due to the Government of Panama"s (GOP) failure to implement policy reforms required by the international financial institutions as conditions for making further loans to the GOP. Since the audit, policy reform breakthroughs have occurred, and A.I.D. has released all but $42 million of program funds. The private sector reactivation program, which provides funds to Panama"s private banking system, is not being implemented as authorized. Requirements that the banks submit a lending plan as a prerequisite for loan approval were dropped. As a result, the entire $107.9 million provided under the program was disbursed on the basis of past versus prospective lending activity. There is no way of determining whether funds received under the program resulted in increased lending for the specific types of activities the program was intended to support. Further, USAID/P has failed to determine the private sector"s continuing need for program funds. Without this determination, reflow funds from the purchase of interbank certificates of deposit (ICD"s) should not be used to purchase additional ICD"s, since the Mission would have no assurance that the original emergency conditions requiring reactivation of the private sector still obtained. The cutoff date for A.I.D. approval of further ICD purchases is 7/25/92. With some minor exceptions, development projects have been implemented in accordance with A.I.D. requirements. USAID/P is not using the current standard provisions for audit contained in Handbook 13, and has failed to establish a system to monitor and track audit recommendations. The Mission also needs to improve management of its participant training program, especially in the areas of accounting, trainee processing, and verification of financial discrepancies.