SIGAR-15-14-SP Review: Processes and Controls Used for U.S. Direct Assistance

government's commitment to expand its provision of on-budget assistance to Afghanistan has led to significant funding through direct assistance. Since 2011, the Department of Defense (DOD) has committed nearly $6.4 billion and disbursed approximately $3 billion, while the Department of State (State) has obligated approximately $140 million and disbursed nearly $77 million. The U.S. Agency for International Development (USAID) has committed and obligated approximately $668 million and disbursed $217 million to its bilateral direct assistance programs in Afghanistan, with an additional $1.25 billion provided through the World Bank's Afghanistan Reconstruction Trust Fund (ARTF). DOD's direct assistance funds come from the Afghanistan Security Forces Fund and are disbursed to the Afghan government through the Combined Security Transition Command-Afghanistan (CSTC-A). CSTC-A provides direct assistance funds to Afghanistan's Ministry of the Interior (MOI) and Ministry of Defense (MOD) to support the personnel and mission expenses of the Afghan National Police and the Afghan National Army. CSTC-A has instituted controls, such as requiring MOI and MOD to develop spending plans and adhere to disbursement conditions, but has not completed comprehensive assessments of MOI and MOD financial management capacity and internal control systems. State, through its Bureau of International Narcotics and Law Enforcement Affairs (INL), provides direct assistance to the Ministry of Counter Narcotics for the Good Performers Initiative and Governor-Led Eradication program. State INL uses a cost-reimbursement method to disburse its direct assistance funds and has instituted controls, such as requiring the Ministry of Counter Narcotics to provide bank statements and monthly reports on the use of funds. However, State INL did not require the completion of a comprehensive assessment of the Ministry of Counter Narcotics' capacity to manage and account for direct assistance funds prior to disbursement. USAID has disbursed nearly $208 million for the five active direct assistance programs in our review. USAID uses a cost-reimbursement method of disbursement and has instituted controls, including reporting/documentation requirements, audit/financial reporting and review standards, a monitoring and evaluation plan, and the establishment of a special joint bank account for disbursement. However, USAID has not ensured the appropriate implementation of all its required controls, such as completing comprehensive assessments of the ministries' capacity to manage and account for direct assistance funds prior to disbursement. The review found that DOD, State, and USAID provide direct assistance through different processes using the Afghan public financial management and procurement systems. Each agency has instituted controls to help ensure the proper use of direct assistance funds, but there are areas for improvement. For example, CSTC-A has not instituted comprehensive assessments of MOI and MOD financial management capacity and internal control systems, while State INL did not require the completion of a comprehensive assessment of the Ministry of Counter Narcotics' capacity to manage and account for direct assistance funds prior to disbursement. USAID has not ensured the appropriate implementation of all its required controls. The review highlights the importance of ensuring that direct assistance funds are properly used and that the Afghan government has the capacity to manage and account for these funds. The U.S. government should consider implementing additional controls and assessments to ensure the effective use of direct assistance funds and to build the capacity of the Afghan government to manage and account for these funds.