Audit of USAID/Egypt"s irrigation management systems project no. 263-0132

The audit covers the period 9/81-3/89 and focuses on 3 of the project"s 10 components - structure replacement (SR), the project preparation department (PPD), and regional irrigation improvement (RII) - and to a lesser extent the main systems management (MSM) component. The SR program will exceed its objectives, but action is needed to reduce contractor delays: USAID/E should either extend the program or deobligate the funds. The Mission also needs to develop criteria for determining what irrigation structures should be replaced and better contracting practices to ensure timely replacement; by these means it could avoid spending $1 million of the remaining funds on inappropriate new structures. USAID/E maintains that adequate prioritization criteria already exist and cites Amendment 4 to the Pro-Ag in disagreeing with the audit opinion that the construction of new (as opposed to replacement) structures is inappropriate. Also under the SR component, the Government of Egypt (GOE) awarded about $410,000 in construction contracts to public sector companies, in violation of the Pro-Ag. The GOE also neglected to reduce cost claims submitted to USAID/E to reflect contractor penalties; as a result, A.I.D. may have reimbursed the GOE $1.4 million more than was required. The Mission disagrees, stating that the penalties should not be viewed as revenue but as compensation for harm suffered by the GOE and therefore have no effect on contract cost. The PPD and MSM components are behind schedule or have not fully achieved their objectives. The PPD"s problems with staff turnover and recruitment have severely limited efforts to strengthen PPD ability to produce studies and proposals for international financing. The MSM has funded an elaborate system of equipment to monitor Nile River waters but the equipment was not of U.S. origin, was nonoperational, and failed to meet acceptance tests. Other equipment was unused or underutilized. The RII component is still at the formative stage and it is too early to tell whether it is likely to succeed. Management needs to: monitor the organizations being used to gather data for the component and to maintain improvements; accelerate the formation of water user groups; and develop a cost-recovery policy. Numerous other recommendations are included to improve controls, management reporting, and project oversight. USAID/E has initiated action on all but one of the audit"s recommendations.