Audit of USAID/Ecuador"s use of program development and support funds

Audit covers the period 2/83-4/87 and is based on document and A.I.D. handbook review and interviews with Mission staff. USAID/E has frequently used PDS funds inappropriately and failed to comply with A.I.D."s grant management requirements. (1) In 1984 and especially in 1985, USAID/E requested and received large increases in its PDS budget so that it could respond rapidly to the needs of the U.S.-supported Febres Cordero administration. Overall, between 10/83 and 1/87, USAID/E disbursed $7.8 million in PDS funds. In many cases, these funds were used inappropriately, e.g., to pay operating expenses, augment the budgets of other projects, and fund new development projects. As a result, USAID/E was able to circumvent A.I.D. limitations on operating expenses and project spending and to fund projects without notifying Congress or obtaining authorizations. The Mission was not entirely unjustified, for there is no specific Agency-wide guidance on the use of PDS funds (although it is generally recognized that these funds should be reserved for project development and design purposes, sector studies, activities to bridge the gap between a terminating and a follow-on project, and rarely, for project evaluations). In response to an audit recommendation, the Assistant Administrator for the Latin American/Caribbean Region (which had been allowing a broader discretion in PDC use than other regions), has issued interim draft guidelines on appropriate PDS use. (2) The Mission"s grant management procedures were not always in compliance with the guidelines in A.I.D. Handbooks 3 and 13 for: insuring competition for grants; obtaining meaningful proposals; preparing negotiating memoranda; evaluating applicants" qualifications; choosing the most appropriate assistance instrument (e.g., grants vs. contracts); and registering private voluntary organizations. Noncompliance created a potential for poor grantee performance and unnecessarily high costs. In some cases the Mission had misinterpreted available guidance; in other cases the guidance was ignored. In response to an audit recommendation, USAID/E has drafted an order making a specific office/employee responsible for enforcing grant management requirements. (Author abstract, modified)