Audit of USAID"s PL 480 Title II monetization programs

The audit covers the period 1994-99 and focuses on the level of cost recovery achieved by USAID"s Cooperating Sponsors (CSs). The auditors were generally unable to determine the actual level of cost recovery achieved by CSs because Office of Food for Peace (FFP) guidance did not require CSs to collect and report all the information needed for this purpose. Because FFP guidelines were unclear as to which costs should be reported or how they were to be calculated, CSs often used different and sometimes flawed methodologies when reporting cost recovery calculations in their Annual Results Reports. This precluded useful analyses and comparisons. Further, much of the cost data necessary to calculate actual cost recovery was simply missing from these reports. For example, for the 69 monetization programs included in the Annual Results Reports reviewed for the audit, costs other than commodity and ocean freight costs were reported for only 20 programs. Also, several CSs reported cost data without specifying whether the costs were actual or estimated. Others simply reported that they had met the cost recovery benchmark without presenting any detailed cost information. Still others did not report on cost recovery at all. Finally, even if FFP did obtain complete cost information, it would not be able to systematically track, analyze, or report the actual cost recovery of monetization programs because it lacks a management information system designed to do so. Such a system would enable FFP to produce reports necessary to evaluate the efficiency of monetization programs. On the positive side, FFP did take certain measures to help ensure the efficiency of PL 480 monetization transactions. For example, FFP established a cost-recovery benchmark to act as a measure of accountability and to prevent sales that might otherwise be carried out with little regard for obtaining a "fair market price." When a CS did not expect to meet or exceed the cost-recovery benchmark, it was required to submit a written waiver request for approval to the Director of FFP. Also, if two or more CSs intended to conduct monetization activities in the same country, FFP strongly encouraged them to participate in a joint "umbrella" monetization in order to minimize marketing costs, avoid duplication of effort, and strengthen the ability of the CSs to negotiate more competitively in the market. FFP also required CSs to obtain a performance bond, equal to at least 10% of the expected sales price, to guarantee payment to the CS in the event the buyer of the Title II commodities failed to live up to the sales agreement. Under certain situations, FFP might approve monetization in a third country if CSs demonstrated that commodity sales in the country in which they had their development activities were impracticable. FFP management accepted audit recommendations to correct the above-noted problems.