[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

U.S. INTERNATIONAL FOOD AID PROGRAMS: OVERSIGHT AND ACCOUNTABILITY

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

OF THE

COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

FIRST SESSION

__________

JULY 9, 2015

__________

Serial No. 114-21

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Printed for the use of the Committee on Agriculture
agriculture.house.gov

______

U.S. GOVERNMENT PUBLISHING OFFICE

95-511 PDF WASHINGTON : 2015
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001

COMMITTEE ON AGRICULTURE

K. MICHAEL CONAWAY, Texas, Chairman

RANDY NEUGEBAUER, Texas, COLLIN C. PETERSON, Minnesota,
Vice Chairman Ranking Minority Member
BOB GOODLATTE, Virginia DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma JIM COSTA, California
STEVE KING, Iowa TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama MARCIA L. FUDGE, Ohio
GLENN THOMPSON, Pennsylvania JAMES P. McGOVERN, Massachusetts
BOB GIBBS, Ohio SUZAN K. DelBENE, Washington
AUSTIN SCOTT, Georgia FILEMON VELA, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee ANN M. KUSTER, New Hampshire
CHRISTOPHER P. GIBSON, New York RICHARD M. NOLAN, Minnesota
VICKY HARTZLER, Missouri CHERI BUSTOS, Illinois
DAN BENISHEK, Michigan SEAN PATRICK MALONEY, New York
JEFF DENHAM, California ANN KIRKPATRICK, Arizona
DOUG LaMALFA, California PETE AGUILAR, California
RODNEY DAVIS, Illinois STACEY E. PLASKETT, Virgin Islands
TED S. YOHO, Florida ALMA S. ADAMS, North Carolina
JACKIE WALORSKI, Indiana GWEN GRAHAM, Florida
RICK W. ALLEN, Georgia BRAD ASHFORD, Nebraska
MIKE BOST, Illinois
DAVID ROUZER, North Carolina
RALPH LEE ABRAHAM, Louisiana
JOHN R. MOOLENAAR, Michigan
DAN NEWHOUSE, Washington
TRENT KELLY, Mississippi

______

Scott C. Graves, Staff Director

Robert L. Larew, Minority Staff Director

______

Subcommittee on Livestock and Foreign Agriculture

DAVID ROUZER, North Carolina, Chairman

BOB GOODLATTE, Virginia JIM COSTA, California, Ranking
STEVE KING, Iowa Minority Member
SCOTT DesJARLAIS, Tennessee STACEY E. PLASKETT, Virgin Islands
VICKY HARTZLER, Missouri FILEMON VELA, Texas
TED S. YOHO, Florida RICHARD M. NOLAN, Minnesota
DAN NEWHOUSE, Washington CHERI BUSTOS, Illinois
TRENT KELLY, Mississippi

(ii)

C O N T E N T S

----------
Page
Conaway, Hon. K. Michael, a Representative in Congress from
Texas, opening statement....................................... 35
Costa, Hon. Jim, a Representative in Congress from California,
opening statement.............................................. 3
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, opening statement................................... 38
Rouzer, Hon. David, a Representative in Congress from North
Carolina, opening statement.................................... 1
Prepared statement........................................... 2

Witnesses

Melito, Thomas, Director, International Affairs and Trade, U.S.
Government Accountability Office, Washington, D.C.............. 5
Prepared statement........................................... 7
Submitted questions.......................................... 45
Trujillo, Catherine M., Acting Deputy Inspector General, U.S.
Agency for International Development, Washington, D.C.......... 16
Prepared statement........................................... 18
Supplementary material....................................... 43
Submitted questions.......................................... 50
DeSmet, Rodney G., Deputy Assistant Inspector General for Audit,
Office of Inspector General, U.S. Department of Agriculture,
Washington, D.C................................................ 22
Prepared statement........................................... 23

U.S. INTERNATIONAL FOOD AID PROGRAMS: OVERSIGHT AND ACCOUNTABILITY

----------

THURSDAY, JULY 9, 2015

House of Representatives,
Subcommittee on Livestock and Foreign Agriculture,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 9:34 a.m., in
Room 1300 of the Longworth House Office Building, Hon. David
Rouzer [Chairman of the Subcommittee] presiding.
Members present: Representatives Rouzer, King, Hartzler,
Yoho, Newhouse, Kelly, Conaway (ex officio), Costa, Plaskett,
Nolan, and Peterson (ex officio).
Staff present: Bart Fischer, Caleb Crosswhite, Callie
McAdams, Carly Reedholm, Haley Graves, Mollie Wilken, Scott C.
Graves, John Konya, Andy Baker, and Nicole Scott.

STATEMENT OF HON. DAVID ROUZER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NORTH CAROLINA

The Chairman. This hearing of the Subcommittee on Livestock
and Foreign Agriculture to review U.S. international food aid
programs, oversight and accountability, will come to order.
Now, before I get going any further, I want to welcome a new
Member of the Subcommittee, Trent Kelly from Mississippi. I am
very glad to have you on the Subcommittee, and I look forward
to your contributions.
Now, I want to thank each of you for joining us this
morning to build off the work begun here 2 weeks ago at the
full Committee level. At that time we heard from both USDA and
USAID officials who are charged with implementing U.S.
international food aid programs about some of the things that
are working, and others that could be improved. One of the
programs most lauded by USAID, the Emergency Food Security
Program, allows for local and regional purchases of food
abroad, as well as cash transfers and food vouchers to aid
those most in need.
In fact, we have been made keenly aware of efforts to
transform Title II of the Food for Peace Act into a cash-based
assistance program that is virtually identical to the Emergency
Food Security Program. But, as Chairman Conaway pointed out,
reforms made in the 2014 Farm Bill have already resulted in
unprecedented flexibility with Title II spending. So rather
than rushing ahead with efforts to convert a time-tested food
aid program into cash-based assistance, it is imperative that
we monitor effects of the programs and flexibilities that are
already in place. It is my hope that today's hearing will make
strides in doing just that.
According to the Government Accountability Office, in
Fiscal Year 2014 the United States funded cash and voucher
projects spanning across 28 countries, totaling about $410
million through the Emergency Food Security Program. Given
USAID's use of section 202(e) funding to engage in similar
projects, and the push for even more Title II flexibility, I
find GAO's recent report on cash-based assistance especially
timely, and look forward to discussing it in greater detail
today. I also look forward to learning more about the USDA and
USAID OIG's body of work regarding the agency's implementation
of various programs and projects.
The Economic Research Service just announced that the
global percentage of food insecure people will drop to 13.4
percent this year, compared to 14.8 percent last year.
Unfortunately, that progress may be short lived, as the
percentage of food insecure people is expected to increase to
15.1 percent by 2025. These figures underscore the continued
importance of international food aid programs, and I am proud
of the United States' long established tradition as the leader
of global efforts to alleviate hunger and malnutrition abroad.
I am especially proud of the role that the agriculture
community has played in that process during the past 60 years.
In order to continue this custom, additional food aid reforms
must be debated in an open and transparent manner, and in the
context of developing the next farm bill. I also believe that
agriculture must be an integral part of any discussions about
the overall approach to global food security. Now, as we move
forward, it is very important that we work to maximize
cooperation and program efficiency to reach an even greater
number of people in need, but in doing so, we must not lose
sight of the importance of maintaining broad domestic support
for these vital programs.
Again, thank you all for being here today, and I look
forward to continuing to work with you throughout the review
process.
[The prepared statement of Mr. Rouzer follows:]

Prepared Statement of Hon. David Rouzer, a Representative in Congress
from North Carolina
Thank you for joining us this morning as the Subcommittee on
Livestock and Foreign Agriculture continues to build off the work begun
here just 2 weeks ago at the full Committee level. At that time, we
heard from both USDA and USAID officials who are charged with
implementing U.S. international food aid programs about some of the
things that are working and others that could be improved.
One of the programs most lauded by USAID--the Emergency Food
Security Program--allows for local and regional purchases of food
abroad, as well as, cash transfers and food vouchers to aid those most
in need. In fact, we have been made keenly aware of efforts to
transform Title II of the Food for Peace Act into a virtually identical
cash-based assistance program. But, as Chairman Conaway pointed out,
reforms made in the 2014 Farm Bill have already resulted in
unprecedented flexibility with Title II spending. So, rather than
rushing ahead with efforts to convert a time-tested food aid program
into cash-based assistance, it is imperative that we monitor effects of
the programs and flexibilities already in place. It is my hope that
today's hearing will make strides in doing just that.
According to the Government Accountability Office, in Fiscal Year
2014, the United States funded cash and voucher projects spanning
across 28 countries and totaling about $410 million through the
Emergency Food Security Program. Given USAID's use of section 202(e)
funding to engage in similar projects, and the push for even more Title
II flexibility, I find GAO's recent report on cash-based assistance
especially timely and look forward to discussing it in greater detail
today. I also look forward to learning more about the USDA and USAID
OIGs' body of work regarding the agencies' implementation of various
programs and projects.
The Economic Research Service just announced that the global
percentage of food-insecure people will drop to 13.4 percent this year,
compared to 14.8 percent last year. Unfortunately, that progress may be
short-lived, as the percentage of food-insecure people is expected to
increase to 15.1 percent by 2025. These figures underscore the
continued importance of international food aid programs, and I am proud
of the United States' long-established tradition as the leader of
global efforts to alleviate hunger and malnutrition abroad.
I am especially proud of the role that the agricultural community
has played in that process over the past 60 years. In order to continue
this custom, additional food aid reforms must be debated in an open and
transparent manner and in the context of developing the next farm bill.
I also believe that agriculture must be an integral part of any
discussions about whole-of-government approaches to global food
security.
As we move forward, it is important that we work to maximize
cooperation and program efficiency to reach an even greater number of
people in need. But in doing so, we must not lose sight of the
importance of maintaining broad domestic support for these vital
programs.
Again, thank you all for being here today, and I look forward to
continuing to work with you throughout this review process.
I now yield to Ranking Member Costa for any remarks he would like
to make.

The Chairman.I now yield to Ranking Member Costa for any
remarks that he would like to make. Mr. Costa?

STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF CALIFORNIA

Mr. Costa. Thank you very much, Chairman Rouzer, Members of
the Subcommittee. I think this is an important matter that the
Subcommittee provide its attention and oversight to for a host
of reasons. I also appreciate the witnesses that are appearing
before the Subcommittee, and look forward to their testimony.
The United States Agency for International Development,
USAID, as we refer to it, and the Department of Agriculture's
foreign service, USDA's FAS, must be commended for a history of
long work that they do. And that is just the facts. But it is
also very important, as we have this oversight hearing today,
that we examine, for the purpose of the Agriculture Committee's
oversight, to evaluate the implications from what I believe the
traditional direct food assistance aid has done, and continues
to do, versus the cash-based assistance effort.
And let me just put it out here very clearly so everybody
understands it. I have a sense that the traditional direct food
aid support is a much more meritorious way to provide the
support for those who need it, as opposed to a cash-based
assistance effort. Frankly, there are all sorts of issues out
there that create problems in a cash-based assistance program,
and the GAO, in their preliminary report of what I read,
indicates that you are having a difficult time monitoring that
and staying on top of it.
And, frankly, if you want to talk about giving food to
needy people who are hungry, and you also want to have the
corollary benefit of helping American farmers and ranchers and
people, you are taking surplus food that is there, and you are
giving it to the people who need it. And there is a lot less
room when you do a direct transfer of food itself than the sort
of shenanigans that can go on when you deal with cash-based
assistance in some third world countries in which, frankly,
there is a level of corruption that--let us acknowledge it for
what it is: cronyism, these things happen, and we have less
ability to monitor and to control.
The United States is the largest supplier of food aid. Now
we have become the largest provider of cash-based assistance.
And it is wonderful that we are in a position where we can
help, with all the cornucopia of food products that we grow in
our country to help those who are most in need. That is an
important humanitarian thing to do, and we should. But,
providing cash as an alternative is a poor substitute.
The Agricultural Act of 2014, which the Agriculture
Committee spent many long hours--we all spent a lot of hours--
working on making several improvements to the international
food aid programs to provider greater flexibility to USAID, and
to the United States Department of Agriculture's Foreign
Agricultural Service. However, there appears, to me, to be an
inherent flaw in the system, because despite the flexibility
that we provided you, both for USAID and for USDA, in Congress
we have obviously made cuts on your budget, and so we get that.
We want you to do more with less.
But monitoring that, especially when you are looking at the
dual application of the food assistance versus the cash, can be
dealt with in a significant way by simply relying more on the
direct food support, as opposed to the cash assistance, where
there are much more requirements to monitor to avoid the sort
of monies being put into the wrong hands, and never getting
into the hands of the people who are hungry, and who need the
food.
So we should do all we can to provide these agencies the
support so that they can properly monitor how American tax
dollars are being spent. That is what we all care about here.
But we also care about doing the right thing. But we ask this
in all our domestic programs, so I am going to look forward to
the answers by the witnesses on questions we will ask on how
these programs are actually being implemented. Because to
provide assistance to hungry people around the world is
incredibly important. It is a good part of American diplomacy
as we deal in a more troubling world, and it provides American
goodwill in areas where we have a lot of challenges. And I
think, politically and diplomatically, that is important as
well.
But for the food aid programs to provide the benefits to
America's farmers, our ranchers, our transportation systems, to
our docks to haul the food out, it also helps our economy. So
for people who aren't in the Farm Belt, we move those excess
products--they get shipped across the country, they get shipped
to ports. People are working. And then, of course, they get
sent to those countries where the need is the greatest. So the
food aid programs provide benefit to America's farmers,
ranchers, its agriculture economy, to its support workers, by
moving those products abroad.
In my home State of California, we produce some of the best
food and fiber that helps feed not only everybody in America,
but also people around the world. So one of the problems that I
see is that the in-kind donations, which a lot of my farmers
provide when we have surplus crops, and we have crops that are
sitting and being shelved, is that locally sourced products are
not adequate, and do not come close to matching the quality of
the food produced in the United States. Furthermore, based on
conversations I have had with local producers, there is a
greater network for monitoring commodity based food areas that
I don't think we are taking advantage of, and I would like your
comments there.
And, finally, I understand that a changing and global
economy in many of the locations where these programs operate,
it is necessary to be flexible. We get that. I know you need
some assistance on flexibility. But we need to make sure that
these programs are supported with the necessary resources, and
I think that there is naturally a tendency--the cash-based is
easier. I get that. It is easier to provide, have somebody
write a check. But I think it is far more worthwhile and
productive to provide the food, and there is a much greater
assurance that that food is going to get in the hands of the
people who need it the most.
So, again, I want to thank the witnesses. Mr. Chairman, I
want to thank you for having this hearing today, and I look
forward to the testimony by the witnesses.
The Chairman. Thank you, Mr. Costa. The chair would request
that other Members submit their opening statements for the
record so the witnesses may begin their testimony, and to
ensure that there is ample time for questions. The chair would
like to remind Members that they will be recognized for
questioning in order of seniority for Members who were present
at the start of the hearing. After that, Members will be
recognized in order of their arrival, and I appreciate Members'
understanding. Witnesses are asked to limit their oral
presentations to 5 minutes. All written statements will be
included for the record.
Now, I would like to welcome our witnesses to the table.
First we have Mr. Thomas Melito, Director of International
Affairs and Trade, U.S. Government Accountability Office here
in Washington, D.C. Following him we have Ms. Catherine
Trujillo, Acting Deputy Inspector General, U.S. Agency for
International Development, Office of Inspector General here in
Washington. And then finally we have Mr. Rod DeSmet, Deputy
Assistant Inspector General for Audit, USDA Office of Inspector
General, here in Washington as well.
Mr. Melito, please begin when you are ready.

STATEMENT OF THOMAS MELITO, DIRECTOR,
INTERNATIONAL AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY
OFFICE, WASHINGTON, D.C.

Mr. Melito. Chairman Rouzer, Ranking Member Costa, and
Members of the Subcommittee, thank you for this opportunity to
discuss our recent work reviewing international food assistance
delivered through cash transfers and voucher programs funded
and overseen by the U.S. Agency for International Development.
For over 60 years the United States has provided assistance to
food insecure countries, primarily in the form of food
commodities procured in the United States and transported
overseas. In recent years the United States has joined other
major donors in increasingly providing food assistance in the
form of cash or vouchers. In Fiscal Year 2014 the U.S. funded
cash and voucher projects in 28 countries, totaling about $410
million, with the majority of this funding for the Syria
crisis. The United States was the single largest donor of cash-
based food assistance in 2014.
My testimony is based on a report which was released in
March of this year. I will focus on three topics. First,
USAID's process for awarding and modifying cash-based food
assistance. Second, the extent to which USAID and its partners
have implemented financial controls to help ensure appropriate
oversight of such projects, and third, GAO's recommendations
and USAID's response to them.
Regarding the first topic, GAO found that USAID followed
its internal guidance when it awarded new cash-based food
assistance grants. However, USAID lacks formal guidance when
modifying these awards. Partners may propose cost or no cost
modifications for a variety of reasons, such as an increase in
the number of beneficiaries, or changing market conditions
affecting food prices. In our review of 13 grant awards that
had been modified, GAO found that cost modifications had
increased the funding for these 13 awards from about $91
million to $626 million.
GAO also found that, although USAID requires partners to
monitor market conditions, which is a key factor that may
trigger an award modification, it does not provide guidance on
when and how to respond to changing market conditions. Without
guidance on modifying awards, including when market conditions
change, USAID cannot hold its staff and implementing partners
accountable for taking all necessary steps to justify the
modification of awards.
Regarding the second topic, USAID relies on implementing
partners for financial oversight of cash grants, but does not
require them to conduct comprehensive risk assessments to
planned financial oversight activities. In addition, it
provides little related procedural guidance to partners and its
own staff. For projects we analyzed in four case study
countries, GAO found that neither USAID, nor its implementing
partners, conducted comprehensive risk assessments to identify
and mitigate financial vulnerabilities. Additionally, although
USAID's partners had generally implemented financial controls
over cash and voucher distributions that GAO had reviewed, some
partners' guidance for the financial oversight had weaknesses,
such as a lack of information on how to estimate and report on
losses.
In addition, GAO found that USAID had limited guidance on
financial activities, and provided no information to aid
partners in estimating and reporting losses. As a result,
partners may neglect to implement appropriate financial
controls in areas that are most vulnerable to fraud, diversion,
and misuse of cash funding. As we noted in our March report,
several incidences of malfeasance had already surfaced in this
program. It is essential that USAID learn from these
circumstances and implement the necessary changes.
Regarding the third topic, our March 2015 report included
recommendations to strengthen USAID's guidance for staff on
approving award modifications, and guidance for partners on
responding to changing market conditions. GAO also made
recommendations to strengthen financial oversight of cash-based
food assistance projects by addressing gaps in USAID's guidance
on risk assessments and mitigation plans, and on financial
control activities.
USAID concurred with the recommendations in the March 2015
report. Since that time, USAID has indicated to GAO that it has
taken some actions to implement these recommendations.
According to USAID, it has, among other efforts, issued written
guidance on the review and approval of modifications to cash
awards. In addition, USAID indicated that they now have a
requirement for applicants to provide an assessment of risk of
fraud or diversion, and controls in place to prevent any
diversion. We appreciate USAID's efforts in response to our
recommendations. We will work expeditiously with USAID to
collect and review evidence, documenting its actions to
determine whether they are sufficient to close, as implemented,
any of the GAO recommendations.
Chairman Rouzer, Ranking Member Costa, and Members of the
Subcommittee, this completes my prepared statement. I will be
pleased to respond to any questions you may have.
[The prepared statement of Mr. Melito follows:]

Prepared Statement of Thomas Melito, Director, International Affairs
and Trade, U.S. Government Accountability Office, Washington, D.C.
International Cash-Based Food Assistance_USAID Has Processes for
Initial Project Approval but Needs to Strengthen Award
Modification and Financial Oversight
GAO Highlights
Highlights of GAO-15-760T (http://www.gao.gov/products/GAO-15-
760T), a testimony before the Subcommittee on Livestock and Foreign
Agriculture, Committee on Agriculture, House of Representatives.
Why GAO Did This Study
For over 60 years, the United States has provided assistance to
food-insecure countries primarily in the form of food commodities
procured in the United States and transported overseas. In recent
years, the United States has joined other major donors in increasingly
providing food assistance in the form of cash or vouchers. In Fiscal
Year 2014, U.S.-funded cash and voucher projects in 28 countries
totaled about $410 million, the majority of which was for the Syria
crisis, making the United States the largest single donor of cash-based
food assistance.
This testimony summarizes GAO's March 2015 report (GAO-15-328) that
(1) reviewed USAID's processes for awarding and modifying cash-based
food assistance projects and (2) assessed the extent to which USAID and
its implementing partners have implemented financial controls to help
ensure appropriate oversight of such projects. GAO analyzed program
data and documents for selected projects in Jordan, Kenya, Niger, and
Somalia; interviewed relevant officials; and conducted fieldwork in
Jordan, Kenya, and Niger.
What GAO Recommends
GAO's March 2015 report included recommendations to strengthen
USAID's guidance for staff on approving award modifications and
guidance for partners on responding to changing market conditions. GAO
also made recommendations to strengthen financial oversight of cash-
based food assistance projects by addressing gaps in USAID's guidance
on risk assessments and mitigation plans and on financial control
activities. USAID concurred with the recommendations.
View GAO-15-760T (http://www.gao.gov/products/GAO-15-760T). For
more information, contact Thomas Melito at (202) 512-9601 or
melitot@gao.gov.
What GAO Found
The U.S. Agency for International Development (USAID) awards new
cash-based food assistance grants under its Emergency Food Security
Program (EFSP) through a competitive proposal review or an expedited
noncompetitive process; however, USAID lacks formal internal guidance
for modifying awards. In its March 2015 review of 22 grant awards, GAO
found that USAID made 13 through its competitive process, seven through
an abbreviated noncompetitive review, and two under authorities
allowing an expedited emergency response. According to USAID, the
agency follows a similar process for modification requests. Partners
may propose cost or no-cost modifications for a variety of reasons,
such as an increase in the number of beneficiaries or changing market
conditions affecting food prices. In its review of 13 grant awards that
had been modified, GAO found that cost modifications for eight awards
resulted in an increase in funding for the 13 awards from about $91
million to $626 million. According to USAID, procedures for modifying
awards have been updated but GAO has yet to verify this information.
GAO also found that though USAID requires partners to monitor market
conditions--a key factor that may trigger an award modification--it did
not provide guidance on when and how to respond to changing market
conditions. GAO concluded that, until USAID institutes formal guidance,
it cannot hold its staff and implementing partners accountable for
taking all necessary steps to justify and document the medication of
awards.
Emergency Food Security Program (EFSP) Cash and Voucher Awards, Fiscal
Years 2010-2014

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source: GAO analysis of USAID data. GAO-15-760T.

USAID relies on implementing partners for financial oversight of
EFSP projects but did not require them to conduct comprehensive risk
assessments to plan financial oversight activities, and it provided
little related procedural guidance to partners and its own staff. For
projects in four case study countries reviewed in its March 2015
report, GAO found that neither USAID nor its implementing partners
conducted comprehensive risk assessments to identify and mitigate
financial vulnerabilities. Additionally, although USAID's partners had
generally implemented financial controls over cash and voucher
distributions that GAO reviewed, some partners' guidance for financial
oversight had weaknesses, such as a lack of information on how to
estimate and report losses. In addition, GAO found that USAID had
limited guidance on financial control activities and provided no
information to aid partners in estimating and reporting losses. As a
result, partners may neglect to implement appropriate financial
controls in areas that are most vulnerable to fraud, diversion, and
misuse of EFSP funding.

July 9, 2015

Chairman Rouzer, Ranking Member Costa, and Members of the
Subcommittee:

Thank you for this opportunity to discuss our recent work reviewing
international food assistance delivered through cash transfers or
voucher programs funded and overseen by the U.S. Agency for
International Development (USAID). For over 60 years, the United States
has provided assistance to food-insecure countries primarily in the
form of food commodities procured in the United States and transported
overseas. In recent years, the United States has joined other major
donors in increasingly providing food assistance in the form of cash or
vouchers. In addressing humanitarian crises around the world, USAID
currently implements a cash-based program--the Emergency Food Security
Program (EFSP)--through its Office of Food for Peace (FFP), with
funding from the International Disaster Assistance account.\1\ In
Fiscal Year 2014, FFP's funding of targeted cash transfer and food
voucher programs amounted to about $410 million, the majority of which
was for the Syria crisis; in Fiscal Years 2010 through 2014, it totaled
about $991 million.\2\ In addition, FFP manages the majority of U.S.
international food assistance--primarily in-kind food aid commodities--
authorized by Title II of the Food for Peace Act, which in Fiscal Year
2015 totaled about $1.47 billion.\3\
---------------------------------------------------------------------------
\1\ The International Disaster Assistance (IDA) account funds
programs authorized by Chapter 9 of the Foreign Assistance Act of 1961,
as amended (22 U.S.C. 491 et seq.), and receives appropriations
pursuant to annual appropriations acts for Foreign Operations.
Appropriations for Fiscal Years 2013 and 2014 included amounts
designated by Congress for Overseas Contingency Operations (OCO) for
the purpose of addressing humanitarian crises, including the Syria
crisis.
\2\ EFSP also funds local and regional procurement projects, which
totaled $1.2 billion in Fiscal Years 2010 through 2014. In addition,
with funding from the Emergency Refugee and Migration Assistance and
the Migration and Refugee Assistance budget accounts the U.S.
Department of State's (State) Bureau of Population, Refugees, and
Migration provides U.S. contributions to several multilateral
organizations including the UN World Food Programme (WFP), among
others. For example, over the past 4 years, the bureau supported cash-
based food assistance activities as follows: in Fiscal Years 2010 and
2011, $5 million and $7.7 million, respectively, to WFP for in-kind
food and vouchers to Iraqi refugees living in Syria; and in Fiscal Year
2014, $1.2 million to WFP for repatriating refugees from the Republic
of the Congo.
\3\ Title II is reauthorized through the farm bill approximately
every 5 years and is funded through the U.S. Department of Agriculture
budget. Title II of the Food for Peace Act, administered by USAID,
addresses donation of agricultural commodities for humanitarian
purposes. In this report, we refer to the Food for Peace Act as Title
II.
---------------------------------------------------------------------------
My testimony summarizes the findings from our report issued in
March of this year,\4\ which had two objectives: (1) to review USAID's
processes for awarding and modifying cash-based food assistance
projects and (2) to assess the extent to which USAID and its
implementing partners have implemented financial controls to help
ensure appropriate oversight of such projects. To address these
objectives, we analyzed data and reviewed program documents provided by
USAID and its implementing partners, including the United Nations (UN)
Food and Agriculture Organization (FAO), the UN World Food Programme
(WFP), and selected nongovernmental organizations (NGO).\5\ To review
USAID's processes for awarding and modifying cash-based food assistance
projects, we reviewed USAID's program guidance and relevant directives,
as well as grant proposals and agreements.\6\ Given that FFP's cash-
based projects are to monitor market conditions to detect significant
changes that may warrant project modifications, we also analyzed price
data for key staple commodities in selected markets in four case study
countries: Jordan, Kenya, Niger, and Somalia.\7\ To assess the extent
to which USAID and the implementing partners implemented financial
controls, we reviewed documentation and reports related to the cash and
voucher distributions in our case study countries, and assessed the
controls they have designed and implemented against their policies,
procedures, guidance; Federal internal control standards; and
international principles and guidelines.\8\
---------------------------------------------------------------------------
\4\ GAO, International Cash-Based Food Assistance: USAID Has
Developed Processes for Initial Project Approval but Should Strengthen
Financial Oversight, GAO-15-328 (http://www.gao.gov/products/GAO-15-
328) (Washington, D.C.: Mar. 26, 2015).
\5\ We use the term ``implementing partners'' to refer to entities
such as WFP, FAO, and NGOs that are awarded U.S. Government grants to
carry out food assistance activities overseas. WFP and FAO may contract
with international and local NGOs as sub-awardees.
\6\ This review focused on cash and voucher interventions funded
under EFSP. We did not include local and regional procurement funded
through EFSP, which some consider to be a form of cash-based food
assistance.
\7\ We selected these four countries on the basis of several
factors including the level of USAID EFSP funding, the types of
modalities and mechanisms used to transfer the assistance, implementing
partners, security concerns and risks, and logistics and budget
constraints. We cannot generalize our findings from these four
countries to the other countries where USAID has funded cash-based food
assistance projects.
\8\ GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (http://www.gao.gov/products/GAO/AIMD-00-21.3.1)
(Washington, D.C.: November 1999); Committee of Sponsoring
Organizations of the Treadway Commission, Internal Control--Integrated
Framework (September 1992) and Internal Control--Integrated Framework
(May 2013); and International Organization for Standardization, ISO
31000, Risk Management--Principles and Guidelines (2009).
---------------------------------------------------------------------------
In Washington, D.C., we interviewed officials from the Department
of State (State), the U.S. Department of Agriculture (USDA), and USAID.
We also met with officials representing NGOs that were awarded EFSP
grants to serve as implementing partners in carrying out U.S. food
assistance programs overseas or were sub-awardees for USAID grants
awarded to WFP (and in some cases were both). In Rome, we met with
officials from the U.S. Mission to the United Nations, FAO, and WFP. We
also met with the UN permanent representatives for three major donors--
Canada, the European Union, and the United Kingdom. In addition, we
conducted fieldwork in three countries (Jordan, for Syrian refugees;
Kenya; and Niger) where we met with officials from the U.S. missions,
implementing partners, vendors, financial institutions, and
beneficiaries, among others.\9\ Further details on our scope and
methodology can be found in our March 2015 report. In June 2015, USAID
provided GAO with information on its progress in addressing the
recommendations from our March 2015 report. The work upon which this
testimony was based was conducted in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
---------------------------------------------------------------------------
\9\ We interviewed staff from USAID and its implementing partners
in Nairobi who had responsibility for oversight of the EFSP-funded
operations in both Kenya and Somalia.
---------------------------------------------------------------------------
Background
USAID's cash-based food assistance program started in 2008 under
the management of its Office of Foreign Disaster Assistance. In June
2010, management of the program was transferred to FFP. In 2014, FFP
provided EFSP funding for cash and voucher projects in 28 countries,
including some countries with areas considered high security risk.
Obligations for cash-based EFSP projects grew from $75.8 million in
Fiscal Year 2010 to $409.5 million in Fiscal Year 2014--an increase of
440 percent over the 5 year period, the majority of which was in
response to a large and sustained humanitarian crisis in Syria,
including cash-based food assistance to Syrian refugees in the Syria
region.\10\ Of the $991 million in total grant funding obligated in
Fiscal Years 2010 to 2014, $330.6 million was for cash interventions
and $660.3 million was for voucher interventions. The majority of the
funding--$621.7 million (or 63 percent)--was awarded to WFP, and $369.3
million (or 37 percent) was awarded to other implementing partners.
---------------------------------------------------------------------------
\10\ These obligations included funds designated for OCO. The
targeted food voucher program in Syria was funded with IDA, including
amounts designated for OCO, in 2013 and was entirely funded with IDA
funds designated for OCO in 2014, according to data from USAID. IDA
obligations for cash transfer and voucher programs, including amounts
designated for OCO, increased from $75.8 million in Fiscal Year 2010 to
$136.9 million in Fiscal Year 2014.
---------------------------------------------------------------------------
To deliver cash-based food assistance, USAID's implementing
partners employ a variety of mechanisms ranging from direct
distribution of cash in envelopes to the use of information
technologies such as cell phones and smart cards to redeem electronic
vouchers or access accounts established at banks or other financial
institutions (see Fig. 1). The value of cash and voucher transfers is
generally based on a formula that attempts to bridge the gap between
people's food needs and their capacity to cover them.\11\
---------------------------------------------------------------------------
\11\ The cash and voucher transfers can be either (1) conditional
transfers, where certain requirements are imposed on beneficiaries such
as their participation in community work programs or attending training
or going to school; or (2) unconditional transfers, whereby no
requirements on beneficiaries are made, and the assumption is that
beneficiaries will use the cash or vouchers to obtain food based on a
household assessment of food access and availability.
---------------------------------------------------------------------------
Figure 1: Types of Cash and Voucher Mechanisms Used to Deliver Cash-
Based Food Assistance

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source: GAO analysis of data from the U.S. Agency for
International Development and the United Nations World Food
Programme. GAO-15-760T.

Financial oversight in cash-based food assistance programs includes
managing program funds to ensure they are spent in accordance with
grant agreements by, among other things, assessing financial risks and
implementing controls to mitigate those risks, including controls to
prevent theft and diversion of cash, counterfeiting of vouchers, and
losses. Standards for Internal Control in the Federal Government
provides the overall framework for establishing and maintaining
internal control in Federal programs.\12\ In addition, the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) has issued
an internal control framework that, according to COSO, has gained broad
acceptance and is widely used around the world.\13\ Both frameworks
include the five components of internal control: control environment,
risk assessment, control activities, information and communication, and
monitoring. Internal control generally serves as a first line of
defense in safeguarding assets, such as cash and vouchers.\14\ In
implementing internal control standards, management is responsible for
developing the detailed policies, procedures, and practices to fit the
entity's operations and to ensure they are built into and are an
integral part of operations.
---------------------------------------------------------------------------
\12\ GAO/AIMD-00-21.3.1. (http://www.gao.gov/products/GAO/AIMD-00-
21.3.1) These internal control standards were revised in September
2014, and the revisions will become effective for Fiscal Year 2016.
\13\ Committee of Sponsoring Organizations of the Treadway
Commission, Internal Control--Integrated Framework (1992). COSO was
formed in 1985 to sponsor the National Commission on Fraudulent
Financial Reporting, an independent, private sector initiative that
studied the causal factors that can lead to fraudulent financial
reporting. In 1992, COSO issued Internal Control--Integrated Framework
to help businesses and other entities assess and enhance their internal
control. Since that time, COSO's internal control framework, which was
updated in May 2013, has been recognized by regulatory standards
setters and others as a comprehensive framework for evaluating internal
control, including internal control over financial reporting.
\14\ In 2004, COSO issued Enterprise Risk Management--Integrated
Framework to help entities better deal with risk in achieving their
objectives. It defines enterprise risk management as ``a process,
effected by an entity's board of directors, management, and other
personnel, applied in strategy setting and across the enterprise,
designed to identify potential events that may affect the entity, and
manage risk to be within its risk appetite, to provide reasonable
assurance regarding the achievement of entity objectives.''
---------------------------------------------------------------------------
USAID Had Developed Processes for Awarding EFSP Funds but Lacked
Guidance on Modifying Awards and Responding to Changing Market
Conditions
In our March 2015 report, we found that USAID had developed
processes for awarding cash-based food assistance grants; however, it
lacked formal internal guidance for its process to approve award
modifications and provided no guidance for partners on responding to
changing market conditions that might warrant an award modification.
USAID's process for awarding EFSP funds. USAID outlined its process
for reviewing and deciding to fund proposals for cash-based food
assistance projects in the Annual Program Statement (APS) for
International Emergency Food Assistance.\15\ According to USAID, the
APS functions as guidance on cash-based programming by describing
design and evaluation criteria for selecting project proposals and
explaining the basic steps in the proposal review process. The APS also
serves as a primary source of information for prospective applicants
that apply for emergency food assistance awards using EFSP resources.
Under the terms of the APS, USAID awards new cash-based food assistance
grants through either a competitive proposal review or an expedited
noncompetitive process. For our March 2015 report, we reviewed 22
proposals for new cash-based food assistance projects that were awarded
and active as of June 1, 2014; we found that USAID made 13 of these
awards through its competitive process, seven through an abbreviated
noncompetitive review, and two under authorities allowing an expedited
emergency response.
---------------------------------------------------------------------------
\15\ See U.S. Agency for International Development, Bureau for
Democracy, Conflict, and Humanitarian Assistance, Office of Food for
Peace, Annual Program Statement for International Emergency Food
Assistance, Opportunity Number APS-FFP-13-000001. USAID has published
annual program statements for this program on its website at http://
www.usaid.gov/what-we-do/agriculture-and-food-security/food-assistance/
programs/emergency-programs.
---------------------------------------------------------------------------
USAID lacked guidance for staff on modifying awards. In our March
2015 report, we found that although the APS outlined the review process
for new award proposals, neither the current 2013 APS nor the two
previous versions provide clear guidance on the process for submission,
review, and approval of modifications to existing awards. According to
USAID officials, USAID follows a similar process in reviewing requests
to modify ongoing awards, which implementing partners may propose for a
variety of reasons, such as an increase in the number of beneficiaries
within areas covered by an award or a delay in completing cash
distributions. Two main types of modifications may be made to a grant
agreement--no-cost modifications and cost modifications. For the four
case study countries, in our March 2015 report, we reviewed 13 grant
agreements made from January 2012 to June 2014 that had 41
modifications during that period. Twenty of these cost modifications
resulted in an increase in total funding for the 13 grants from about
$91 million to about $626 million, a 591 percent increase. Ten of these
cost modifications were made to one award, the Syria regional award,
whose funding increased from $8 million to $449 million (see Fig. 2).
The Syria regional award modifications amounted to about 82 percent of
the total increase in funding for the cost modifications we reviewed.
Figure 2: Timeline of the Modifications Made to the Ongoing Syria
Regional Award, from July 2012

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source: GAO analysis of U.S. Agency for International
Development data. GAO-15-760T.

We concluded that without formal guidance, USAID cannot hold its
staff and its partners accountable for taking all necessary steps to
justify and document the modification of awards. At the time of our
study, USAID noted that its draft internal guidance for modifying
awards was under review. In our March 2015 report, we recommended that
USAID expedite its efforts to establish formal guidance for staff
reviewing modifications of cash-based food assistance grant awards.
USAID concurred with our recommendation. In June 2015, USAID reported
that it issued written guidance that addresses the review and approval
of grant modifications. We have yet to verify this information to
determine whether it addresses the issues we identified.
USAID lacked guidance for implementing partners. Additionally, in
our March 2015 report we found that, although USAID required partners
implementing cash-based food assistance to monitor market conditions,
USAID did not provide clear guidance about how to respond when market
conditions change--for example, when and how partners might adjust
levels of assistance that beneficiaries receive. We analyzed data on
the prices of key staple commodities in selected markets for our case
study countries from Fiscal Years 2010 through 2014. We found that the
prices of key cereal commodities in Niger and Somalia changed
significantly without corresponding adjustments to all implementing
partners' cash-based projects. We did not find similar food price
changes in Jordan and Kenya.
According to USAID officials, USAID does not have a standard for
identifying significant price changes, since the definition of
significance is specific to each country and region. In addition, we
did not find guidance addressing modifications in response to changing
market conditions in the APS. We found that this lack of guidance had
resulted in inconsistent responses to changing market conditions among
different cash and voucher projects funded by USAID. For example, an
implementing partner, whose project we reviewed in Kenya,
predetermined, as part of its project design, when adjustments to cash
transfer amounts would be triggered by food price changes, while an
implementing partner whose project we reviewed in Niger relied on an ad
hoc response. The implementing partner in Kenya established the cash
and voucher transfer rate based on the value of the standard food
basket; it reviewed prices every month but would change cash and
voucher transfer amounts only in response to price fluctuations, in
either direction, of more than ten percent.
We concluded that without clear guidance about when and how
implementing partners should modify cash-based food assistance projects
in response to changing market conditions, USAID ran the risk of
beneficiaries' benefits eroding through price increases or inefficient
use of scarce project funding when prices decrease. We recommended in
our March 2015 report that USAID develop formal guidance to
implementing partners for modifying cash-based food assistance projects
in response to changes in market conditions. USAID concurred with this
recommendation. In June 2015, USAID reported entering into an agreement
with the Cash Learning Partnership (CaLP), an organization that is
working to improve the use of cash and vouchers, to help develop
guidance to implementing partners on adapting programs to changing
market conditions. USAID plans to complete this guidance by April 2016.
We have yet to verify this information to determine whether it
addresses the issues we identified.
USAID's Partners Had Generally Implemented Financial Controls in
Projects We Reviewed; We Found Weaknesses in Risk Planning,
Implementation, and Guidance
In our March 2015 report, we found that USAID relied on its
implementing partners to implement financial oversight of EFSP
projects, but it did not require them to conduct comprehensive risk
assessments to plan financial oversight activities--two key components
of an internal control framework. In addition, we found that USAID
provided little or no guidance to partners and its own staff on
carrying out these components.
Internal Control Framework
The internal control standards and framework prescribed for Federal
agencies, and those accepted by and widely used by organizations around
the world, contain five components:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

We focused on the risk assessment and control activities components
to assess the extent to which the U.S. Agency for International
Development and its implementing partners conduct financial risk
assessments of cash and vouchers and implement appropriate controls.

Source: GAO; Committee of Sponsoring Organizations of the
Treadway Commission. GAO-15-760T.

Risk assessments were lacking. Our March 2015 report found that for
case study projects we reviewed in four countries, neither USAID nor
its implementing partners conducted comprehensive risk assessments that
address financial vulnerabilities that may affect cash-based food
assistance projects, such as counterfeiting, diversion, and losses.\16\
USAID officials told us that they conduct a risk assessment for all
USAID's programs within a country rather than separate risk assessments
for cash-based food assistance projects. According to USAID, its
country-based risk assessments focus primarily on the risks that U.S.
Government funds may be used for terrorist activities and on the
security threat levels that could affect aid workers and beneficiaries;
these risk assessments do not address financial vulnerabilities that
may affect cash-based food assistance projects, such as counterfeiting,
diversion, and losses. A USAID official provided us with internal EFSP
guidance to staff on the grant proposal and award process stating that
an award would not be delayed if a risk-based assessment has not been
conducted.
---------------------------------------------------------------------------
\16\ For our review, we defined a comprehensive risk assessment as
one that includes key elements of the risk management process such as
risk identification, assessing the likelihood of the risk occurrence,
its impact, the severity or risk level, mitigation plans, and risk
owners that are reflected in a risk register. In addition, the
identification of risk should be comprehensive and include security
risks, as well as financial, political, market, and other risks.
---------------------------------------------------------------------------
According to USAID officials, its partners have established records
of effective performance in implementing cash and voucher projects and
they understand the context of operating in these high-risk
environments. As a result, USAID expects that its partners will conduct
comprehensive risk assessments, including financial risk assessments,
and develop appropriate risk mitigation measures for their cash-based
food assistance projects. However, none of the partners implementing
EFSP-funded projects in our four case study countries had conducted a
comprehensive risk assessment based on their guidance or widely
accepted standards during the period covered by our March 2015 review.
We found that USAID did not require its implementing partners to
develop and submit comprehensive risk assessments with mitigation plans
as part of the initial grant proposals and award process or as periodic
updates, including when grants are modified.\17\ USAID officials stated
that most EFSP grant proposals and agreements do not contain risk
assessments and mitigation plans. In addition, the implementing
partners we reviewed had not consistently prioritized the
identification or the development of financial risks that address
vulnerabilities such as counterfeiting, diversion, and losses.
---------------------------------------------------------------------------
\17\ At the time of our review, USAID's draft Fiscal Year 2015 APS
required applicants for EFSP grants to conduct risk assessments as a
requirement of their monitoring and evaluation plans. However, the risk
assessment described in the draft Fiscal Year 2015 APS was a general
risk assessment and did not specifically mention risks that address
vulnerabilities endemic to cash and voucher distributions.
---------------------------------------------------------------------------
We concluded that without comprehensive risk assessments of its
projects, USAID staff would be hampered in developing financial
oversight plans to help ensure that partners are implementing the
appropriate controls, including financial controls over cash and
vouchers to mitigate fraud and misuse of EFSP funds. In our March 2015
report, we recommended that USAID require implementing partners of
cash-based food assistance projects to conduct comprehensive risk
assessments and submit the results to USAID along with mitigation plans
that address financial vulnerabilities such as counterfeiting,
diversion, and losses. USAID concurred with our recommendation. In June
2015, USAID noted that the Fiscal Year 2015 APS includes a requirement
for applicants to provide an assessment of risk of fraud or diversion
and controls in place to prevent any diversion or counterfeiting. We
have yet to verify this information to determine whether it addresses
the issues we identified.
Control activities had weaknesses. In our March 2015 report, we
found that USAID's partners had generally implemented financial
controls over cash and voucher distributions but the partners'
financial oversight guidance had weaknesses. We reviewed selected
distribution documents for three implementing partners with projects
that began around 2012 in our four case study countries (Jordan, Kenya,
Niger, and Somalia). Our review found that the three implementing
partners had generally implemented financial controls over their cash
and voucher distribution processes. For example, in Niger, we verified
that there were completed and signed beneficiary payment distribution
lists with thumb prints; field cash payment reconciliation reports that
were signed by the partner, the financial service provider, and the
village chief; and payment reconciliation reports prepared, signed, and
stamped by the financial service provider. Additionally, we determined
that these three implementing partners generally had proper segregation
of financial activities between their finance and program teams.
Nonetheless, in Kenya, our review showed that in some instances,
significant events affecting the cash distribution process were not
explained in the supporting documentation.
Our review also found that in most instances the implementing
partners had submitted reports required by their grant awards, and
generally within the required time frames; in addition, we found that
these reports contained the key reporting elements required by the
grant award. However, in some instances, we were unable to determine
whether quarterly reports were submitted on time because USAID was
unable to provide us with the dates when it received these reports from
the implementing partner. According to USAID officials, USAID does not
have a uniform system for recording the date of receipt for quarterly
progress reports and relies on FFP officers to provide this
information; however, individual FFP officers have different methods
for keeping track of the reports and the dates on which they were
received.
Financial oversight guidance had gaps. In our March 2015 report, we
found that implementing partners in the four case study countries we
reviewed had developed some financial oversight guidance for their cash
and voucher projects, but we found gaps in the guidance that could
hinder effective implementation of financial control activities. For
example, one implementing partner developed a financial procedures
directive in 2013 that requires, among other things, risk assessments,
reconciliations, and disbursement controls. However, the directive
lacked guidance on how to estimate and report losses.\18\ Another
implementing partner had developed field financial guidance in 2013
that provides standardized policies and procedures for financial
management and accounting in the partner's field offices. However, the
implementing partner acknowledged that the field manual does not
address financial procedures specifically for voucher projects. In
addition, we found that USAID's guidance to partners on financial
control activities is limited. For example, USAID lacked guidance to
aid implementing partners in estimating and reporting losses.
---------------------------------------------------------------------------
\18\ Other cash-based assistance programs have procedures to
measure improper payments, which include losses. For example, the
Supplemental Nutrition Assistance Program (SNAP), formerly known as the
Federal Food Stamp Program, is a domestic Federal program that
supplements low-income individuals and households with benefits to
purchase allowable food items. Under Section 2 of the Improper Payments
Information Act of 2002, Federal agencies must identify programs
susceptible to significant improper payments and estimate the annual
amount of improper payments. In Fiscal Year 2014, SNAP, a $76 billion
program, reported an improper payment rate of 3.2 percent (or $2.4
billion), which represents payments that should not have been made or
were for an incorrect amount, and payments that were not supported by
sufficient documentation. SNAP improper payments can include benefits
distributed in error due to administrative as well as recipient errors,
not all of which can be attributed to fraud, among other reasons.
---------------------------------------------------------------------------
We concluded that when implementing partners for EFSP projects have
gaps in financial guidance and limitations with regard to oversight of
cash-based food assistance projects, the partners may not put in place
appropriate controls for areas that are most vulnerable to fraud,
diversion and misuse of EFSP funding. In our March 2015 report, we
recommended that USAID develop a policy and comprehensive guidance for
USAID staff and implementing partners for financial oversight of cash-
based food assistance projects. USAID concurred with our recommendation
and in June 2015 reported that CalP is expected, as part of its award,
to work on the development and dissemination of policy and guidance
related to cash-based food assistance. USAID plans to complete this
effort by April 2016. We have not yet verified this information to
determine whether it addresses the issues we identified.
Limitations in USAID's field financial oversight. As we reported in
March 2015, according to USAID officials, Washington-based country
backstop officers (CBO) perform desk reviews of implementing partners'
financial reports and quarterly and final program reports and share
this information with FFP officers in the field; in addition, both the
Washington-based CBOs and FFP officers in-country conduct field visits.
However, we found that the ability of the CBOs and FFP officers to
consistently perform financial oversight in the field may be
constrained by limited staff resources, security-related travel
restrictions and requirements, and a lack of specific guidance on
conducting oversight of cash transfer and food voucher programs.\19\
Field visits are an integral part of financial oversight and a key
control to help ensure management's objectives are carried out. They
allow CBOs and FFP officers to physically verify the project's
implementation, observe cash disbursements, and conduct meetings with
beneficiaries and implementing partners to determine whether the
project is being implemented in accordance with the grant award.
---------------------------------------------------------------------------
\19\ CBOs have the primary responsibility for oversight of EFSP
grants. They manage these programs within their geographic portfolios
and also serve as agreement officer representatives for those awards.
---------------------------------------------------------------------------
According to the CBOs and FFP officers, the frequency of field
visits for financial oversight depends on staff availability and
security access. In our four case study countries, the FFP officers
told us that because of their large portfolios and conflicting
priorities, they performed limited site visits for the projects that we
reviewed. In Kenya, the FFP officer told us that her portfolio covered
14 counties, and the cash-based food assistance project we reviewed was
just one component. Owing to the demands of all her projects, she had
been able to perform limited site visits for the projects we reviewed.
We also found that USAID had two staff members in the field to oversee
its Syria regional cash-based projects spread over five countries that
had received approximately $450 million in EFSP funding from July 2012
through December 2014.
Because of staff limitations, FFP officers primarily rely on
implementing partners' reports from the field and regular meetings with
them to determine whether a project is being executed as intended.
However, USAID's guidance to its FFP officers and its implementing
partners on financial oversight and reporting is limited. For example,
FFP staff in Niger stated that they have had insufficient guidance and
training on financial oversight of cash-based food assistance projects.
Furthermore, the FFP officers told us that USAID is not prescriptive in
the financial oversight procedures it expects from its implementing
partners. Additionally, they noted that USAID has not set a
quantitative target for site visits by FFP officers. FFP officers in
our four case study countries told us that they use a risk-based
approach to select which sites to visit.
We concluded that without systematic financial oversight of the
distribution of cash and voucher activities in the field, USAID is
hampered in providing reasonable assurance that is EFSP funds and are
being used for their intended purposes. In our March 2015 report, we
recommended that USAID require its staff to conduct systematic
financial oversight of USAID's cash-based food assistance projects in
the field. USAID concurred with this recommendation. As of June 2015,
USAID reported that it is working to develop training for its staff and
will continue to explore using third-party monitors where security
constraints may be an issue. USAID plans to complete these actions by
April 2016. We have not yet verified this information to determine
whether it addresses the issues we identified.
Chairman Rouzer, Ranking Member Costa, and Members of the
Subcommittee, this completes my prepared statement. I would be pleased
to respond to any questions that you may have at this time.
Appendix I: GAO Contact and Staff Acknowledgments
GAO Contact
If you or your staff have questions about this testimony, please
contact Thomas Melito, Director, International Affairs and Trade at
(202) 512-9601 or melitot@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this statement.
Staff Acknowledgments
GAO staff who made key contributions to this testimony are Joy
Labez (Assistant Director), Rathi Bose, Ming Chen, Beryl H. Davis,
David Dayton, Martin De Alteriis, Fang He, Teresa Abruzzo Heger, Dainia
Lawes, Kimberly McGatlin, Diane Morris, Shannon Roe, Barbara Shields,
Sushmita Srikanth, and Dan Will.

The Chairman. Thank you very much. Ms. Trujillo?

STATEMENT OF CATHERINE M. TRUJILLO, ACTING DEPUTY INSPECTOR
GENERAL, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT, WASHINGTON,
D.C.

Ms. Trujillo. Thank you. Chairman Rouzer, Ranking Member
Costa, and Members of the Committee, I am pleased to appear
before you today on behalf of the Office of Inspector General
for USAID, and we appreciate the Committee's interest in our
work to improve the effectiveness in international food aid
programs. Let me just start out by saying that elements of risk
are inherent in all of USAID programs, including food
assistance.
USAID works in environments that are very vulnerable to
fraud, waste, and abuse, and working in fragile countries where
there are weak operational and financial systems, there is
insufficient capacity, deteriorating infrastructure, it makes
it ever so critical that USAID manage and design its programs,
and then in considering each one of these risk elements. And
for that reason we conduct our audits and our investigations in
a way where we focus on the higher levels of risk that surround
USAID assistance programs.
In the last 5 years we have conducted 12 performance audits
and reviews, and reported almost 100 recommendations to USAID
to promote the effectiveness and the management of their food
aid programs. Together with our investigative work and our
audit work, our work has produced more than $18 million in
savings and cost recoveries for the U.S. Government.
Now, our work has primarily addressed the controls and the
performance surrounding the efforts in transport, storage,
monetizing, and distributing food aid commodities, along with
assessing the results of those programs that USAID is designing
to deal with: hunger, malnutrition, agricultural productivity,
and helping countries be more resilient to conflict.
Across that supply chain distribution, our audits and our
investigations have identified risks in all areas, in how USAID
manages its food programs with Title II commodities. For
example, let us just start with shipping and transport. Just
last month the Department of Justice reached an $836,000
settlement with a shipping company that is used by USAID for
food transport. Our investigations concluded that that company
had been billing USAID for higher prices than it should have,
and that had been going on for about 4 years.
We have also reported weaknesses in internal controls at
USAID implementers' levels critical to safeguarding those
commodities. Through our direct observations and our validation
of inventory, we have identified discrepancies with what the
implementer is saying is on hand, and what we have been able to
verify. And that is often because there are weak internal
controls. There is poor record-keeping. There is improper
segregation of duties. There is mishandling of commodities.
There are poor storage conditions. And these weak controls also
make food vulnerable to theft as well. For example, in East
Africa U.S. commodities were siphoned off, and they had been
sold for an extended period of time. And, as a result of our
investigation, USAID actually had to terminate this $100
million program.
And we have also identified problems with USAID's
management of the programs that are designed to help those
populations in need. Our work in Madagascar, for example, noted
that implementing partners had designed different distribution
methods, and, as a result of inconsistency, some beneficiaries
were not getting the rations that they needed when they needed
them the most. In Uganda we found poor program management,
where some individuals were getting commodities that were not
part of the targeted population.
In Haiti we found that cooperating sponsors had failed to
adopt demonstrated best practices, and, as a result, the
program failed to reach the optimized number of mothers with
infants. And also in Haiti we saw overlapping with Title II
programs and USAID programs. As a result, a few beneficiaries
get more than what they are entitled to, and some get less.
In Somalia we found inconsistencies on how USAID vendors
and sub-recipients were using best practices, with regards to
vetting their vendors and their sub-recipients. We have reduced
assurance in those areas that USAID is making sure that they
are examining whether all these groups have any ties to armed,
or terrorist groups, or any other prohibited parties.
We also audited USAID's approach to pre-positioning
commodities in the Horn of Africa, and there we noted that
USAID had not compared the respective costs and benefits of
pre-positioning food in the international ports, compared to
what it would cost to ship them from the United States, despite
the fact that there was an earlier analysis that had
demonstrated that shipping from an international area could
cost up to seven times more.
Lack of key monitoring is a key finding, frequent with all
our findings, and that often explains why these problems have
gone unnoticed, and other problems that we have identified. For
example, poor data quality. We have identified a lack of
financial oversight, which the GAO report also recognized. And
also, not complying with branding and marketing issues. Because
of lack of monitoring, these issues are not identified in a
timely manner, or they are identified when the audits are
performed.
Monitoring deficiencies are of particular concern to us in
conflicted area settings. A substantial amount of food that
USAID gives is going to these types of areas, and because of
security concerns USAID--U.S. direct hires cannot get out--
Americans cannot get out and actually see these activities.
And, therefore, we take very seriously any thefts or reports,
and we actively investigate those, like in areas such as Syria.
Now, I don't want to just leave this on a negative point,
because, as Congressman Costa said, this is an important
program, and we have seen successes in in-kind commodities. We
have talked to direct beneficiaries, who had chronic health
issues, and they have shared with us that they have received
these commodities, and their health has improved. We have
spoken with farmers who said they are seeing improved
productivity. They are actually seeing that they are able to
now use new technologies that they are learning under the Food
for Peace Program. So this is a positive aspect of the in-kind
commodity programs.
Moving forward, we plan to continue to execute our
oversight plans----
[The prepared statement of Ms. Trujillo follows:]

Prepared Statement of Catherine M. Trujillo, Acting Deputy Inspector
General, U.S. Agency for International Development, Washington, D.C.
Chairman Rouzer, Ranking Member Costa, Members of the Subcommittee,
I am pleased to appear before you on behalf of the Office of Inspector
General (OIG) for the U.S. Agency for International Development
(USAID). Today, I will discuss USAID OIG's role in overseeing
international food aid programs and the work that our office has
undertaken to help improve their effectiveness. We appreciate the
Committee's interest in ensuring accountability in the provision of
United States food assistance and welcome the opportunity to share our
perspectives and observations alongside our colleagues from the
Government Accountability Office (GAO) and U.S. Department of
Agriculture (USDA) OIG.
International food assistance occupies a prominent place among U.S.
foreign assistance programs around the world. The U.S. Government's
Food for Peace program dates back to 1954 and has served as an enduring
vehicle for responding to disasters, crises, and hunger abroad. With
more than $1.4 billion in appropriations in Fiscal Year 2014, USAID
programs and activities implemented under Title II of the Food for
Peace Act reflect a major commitment on the part of U.S. taxpayers to
help combat world hunger and malnutrition, promote sustainable
agricultural development, expand international trade, foster private
sector and market development, and prevent conflict.
The majority of Title II assistance is directed toward emergency
programs. This assistance, most of which is provided in-kind, has
provided life-saving support as a major component of the U.S.
Government's response to sudden and urgent crises abroad, such as
earthquakes, floods, drought, and famine. In these cases, USAID
typically partners with international aid organizations, such as the
World Food Programme (WFP), and nongovernmental organizations, to
ensure assistance is delivered to those in need. Conflict and
instability can also prompt the need for the emergency provision of
food assistance, and these settings present even greater challenges,
including direct threats to the lives and welfare of the committed
individuals working to deliver aid.
Food aid also has important non-emergency applications, and under
current law, a minimum of $350 million must be spent on USAID non-
emergency assistance in this area. These funds help provide the basis
for development programs around the world that aim to address hunger
and malnutrition, bolster agricultural productivity, and increase
resilience within target countries.
No humanitarian assistance or development program is without risk,
and USAID and other agencies we oversee all face distinct challenges
related to the settings in which they operate and how they address both
inherent and operational risks. With respect to Food for Peace
programs, beneficiaries are often difficult to access due to geography,
damage caused by natural disasters, or ongoing conflict and
instability. In such settings, infrastructure that may have existed--
including roads and other transportation systems, and local and
national government response capacity--may not be present or
functioning. However Food for Peace programs are ultimately
implemented, the ability to effectively manage and respond to these
types of risks is a key to program success.
Before I discuss our specific observations about how the Food for
Peace program manages these risks, I would like to take a moment to
share a little information about our organization. USAID OIG was
established in 1980 to combat waste, fraud, and abuse, and to promote
economy, efficiency, and effectiveness in USAID programs and
activities. Our mandate has subsequently grown to include oversight
responsibilities for the Millennium Challenge Corporation, the U.S.
African Development Foundation, the Inter-American Foundation, and the
Overseas Private Investment Corporation. Our 224 personnel, including
U.S. direct hire and Foreign Service National staff, operate from ten
locations overseas and our headquarters in Washington, D.C. More than
half of our workforce is comprised of Foreign Service and Foreign
Service National auditors and investigators who enable us to operate in
regional and country offices overseas and help evaluate and respond to
risks on the ground. Meanwhile, our civil service personnel undertake
oversight work in Washington, D.C., and abroad on a temporary duty
basis, and also provide mission critical support through legal counsel,
human capital and information technology assistance, and policy,
planning, and budget functions. Together, OIG staff represent a
formidable team dedicated to improving the way in which foreign
assistance programs are executed.
OIG operates independently from the agencies we oversee. Our
oversight portfolio is broad, with agency programs that extend across
more than 100 countries, and cover activities relating to disaster
assistance and reconstruction, health, finance, education, economic
growth, and, of course, food security, to name a few. We issue audit
reports and undertake investigations into allegations of fraud,
criminal wrongdoing, and other misconduct relating to foreign
assistance programs. In addition to improving how these programs
operate, every year our work yields a net return for the agencies we
oversee.
OIG has examined food assistance activities, including those
implemented under the Food for Peace Act, as a regular part of its
oversight program. In recent years, we have looked at related
activities in conflict- and disaster-affected areas as well as those in
traditional development settings where assistance is provided under
more secure, stable conditions. To help counter risks in both types of
settings, OIG has conducted audits and investigations that enabled
USAID to improve food aid programs and address conditions that hamper
effective delivery of food aid or in which fraud and waste can
flourish. In the last 5 years, USAID OIG has issued 12 performance
audits and reviews with almost 100 recommendations to promote effective
management of food aid programs and activities. Together with our
investigative efforts, this work has produced more than $18 million in
savings and recoveries for the U.S. Government.
As the bulk of Title II Food for Peace programming involves the
provision of in-kind assistance, much of our related work has addressed
controls and performance surrounding the effort to transport, store,
monetize, or distribute food aid commodities. All points along the
supply and distribution chains for food aid are vulnerable to waste and
inefficiency, and may also be subject to fraudulent activity. In fact,
just last month, the U.S. Department of Justice reached a $836,630
civil settlement with a shipping company used by USAID for food aid
transport after an OIG investigation concluded that the company had
billed USAID at a higher rate than it should have for more than 4
years.
The application of appropriate internal controls is critical to
keeping commodities safe and preventing spoilage over the full course
of the logistical chain that links goods to beneficiaries. Our audit
work has focused on such controls over Food for Peace program
commodities and identified related weaknesses on a number of occasions.
During the course of one audit, we found weaknesses such as poor
documentation of the delivery of goods to beneficiaries, inadequate
supervisory controls, and a lack of segregation of duties. In another,
we found discrepancies in records of incoming and outgoing commodities
in one of several warehouses we visited. The same audit also noted that
USAID did not have an adequate system in place to reconcile these
records or identify and resolve discrepancies in a consistent manner,
and that USAID had also not tracked losses for the period audited.
These audits also identified the substandard storage of commodities,
including indications of termite and rodent infestation and conditions
that risked mold growth. In one report, auditors noted that USAID
appeared ill-prepared to evaluate the usability of commodities or to
authorize and effect their disposal. OIG, in turn, recommended measures
to improve management and handling of commodities to address these
types of issues.
With food commodities delivered and sometimes stored in areas of
extreme need, it is also important to guard against theft. We have
observed this vulnerability at different levels in our investigative
work. In Pakistan, we worked with WFP and provincial education
authorities to identify and remove three school employees who had
diverted cooking oil and high-energy biscuits from school children and
sold them on the local market. By contrast, in East Africa, we found
theft on an industrial scale. In that case, U.S. food commodities
intended for beneficiaries had been siphoned off to a local milling
operation that had converted U.S. wheat into flour for international
resale over what appeared to have been an extended period. This, in
turn, prompted USAID to terminate funding for the more than $100
million program that had been the source of the stolen commodities.
The effective delivery of food aid also hinges on sound
implementation of program plans, such that USAID and its network of
implementers execute on a properly considered strategy and achieve
overall objectives of providing food assistance to those who need it
most. We have, nonetheless, seen indications of weaknesses in Food for
Peace program management and coordination over the years. Recent audit
work, for example, noted inconsistencies in the delivery of assistance
by partners with the effect that, in some cases, beneficiaries lacked
access to rations during times of greatest need. In Uganda, OIG found
that poor program management contributed to the distribution of some
food aid to recipients outside the targeted population. In another case
in Somalia, OIG found inconsistencies in how USAID partners vetted
vendors and sub-recipients, reducing assurance that best practices had
been used in fully examining whether these groups had ties to armed or
terrorist groups, or other prohibited parties. Meanwhile, in another
country, OIG investigators concluded that food aid had been provided to
a group registered with the Department of Treasury's Office of Foreign
Assets Control, which enforces sanctions against foreign parties that
represent a national security, foreign policy, or economic threats to
the United States.
OIG work has also identified other program management limitations
in Food for Peace programs. Past OIG work on USAID's approach for pre-
positioning food aid found that USAID had not performed a cost-benefit
analysis comparing pre-positioning food in international ports against
shipping it from the United States, despite an earlier analysis that
showed pre-positioning overseas was seven times more expensive than
doing so in the United States. More recently, OIG auditors observed
that USAID had not implemented recommendations from an evaluation of
its Food for Peace activities in Madagascar and failed to follow-up on
warehouse fumigation requirements. In Haiti, cooperating sponsors
failed to pick up on a demonstrated best practice in implementing their
assistance programming with the result that those with the greatest
nutritional needs received incomplete coverage for a time. We also
found duplication across Food for Peace activities in Haiti, where
Title II programs were overlapping with other USAID activities.
USAID and its implementers frequently gather large volumes of data
on program performance and results to support policy-making on food aid
programs. Accurate and reliable information is critical to program
managers and policymakers alike as they rely on reported data to drive
decisions. However, recent OIG performance audits have frequently
identified data quality weaknesses, something that has been a challenge
for USAID as a whole, and a problem in food assistance programs dating
back many years. An earlier report on programs in Niger found that the
subject program also had too many indicators and noted that many were
too loosely defined to produce meaningful results. Changes to
indicators, such as their definitions and the number of indicators,
have also presented data quality problems, as we found in a recent
audit in Madagascar, where such changes had been made annually, making
it difficult or impossible to compare performance across years or
identify trends.
Collecting data has also been a source of difficulty in some cases.
Sometimes reported data have been found to be unreliable due to under-
or over-reporting, the latter of which was revealed in a recent audit
in Madagascar. OIG audit work has also identified problems with the
accuracy of program data in Syria, Malawi, Mauritania, and Zambia, and
inconsistencies in how this data was collected in Haiti.
Finally, ensuring quality across the full scope of Food for Peace
activities requires effective monitoring. Yet, OIG has found problems
with the frequency or effectiveness of site visits associated with the
Food for Peace programs in the past. Audit work has linked insufficient
monitoring to several of the issues described earlier, such as problems
with data quality and ineffective storage of commodities. Our work has
also identified insufficient monitoring as a contributing factor to
problems related to branding and marketing and overseeing finances
associated with monetization activities. In one instance, weaknesses in
program oversight resulted in a failure to ensure that local sub-
recipients implementing program activities received required audits.
Such audits provide an important measure of assurance that the many
implementers and sub-implementers that play a part in food aid delivery
can properly manage and account for the resources with which they have
been entrusted.
Monitoring deficiencies are of particular concern in conflict-
affected settings. USAID provides a substantial amount of food
assistance in insecure environments, where U.S. Government and
implementer personnel face constraints on their ability to properly
oversee activities. Monitoring difficulties in these settings affect
the full complement of assistance programs, and our work has confirmed
that these weaknesses also apply to Food for Peace programs in these
areas. For this reason, OIG closely follows and aggressively
investigates reports of loss and theft in conflict zones.
Although OIG has noted several significant challenges facing Food
for Peace programs, we have also observed program successes in a number
of settings. Our auditors have credited program implementers with
leveraging technology, networks of volunteers, and community feedback
mechanisms to help meet monitoring needs in challenging security
environments. Our work has also confirmed that Food for Peace programs
have made a number of significant contributions in targeted areas.
People affected by chronic health conditions have described how the
receipt of program commodities helped improve their health. Farmers
have noted increased productivity and pointed to increased incomes as a
result of new agricultural techniques they learned through Food for
Peace programs. We have also seen the effectiveness of programs in
helping ameliorate conditions in crises around the world through the
delivery of food aid to those in desperate need. In addition, OIG
audits have noted that Food for Peace programs have improved nutrition
and produced health gains for families and communities where they have
operated.
To help the U.S. Government's food assistance programs achieve
their full potential, USAID OIG will continue its work to assess their
performance and help identify and respond to corresponding risks. In
line with this commitment, OIG recently initiated an audit of related
activities as part of USAID's response to the Ebola crisis in West
Africa. Also, as a follow up to concerns raised in past audit work, we
plan a review of the use of Food for Peace consortiums in Southern and
East Africa and their effect on competition for Agency awards. In the
coming fiscal year, OIG plans to assess the performance of Food for
Peace programs in Haiti, as well as food assistance in Syria delivered
through WFP. As we execute these oversight plans, we will also continue
to examine the U.S. Government's broader effort to address food
insecurity by auditing USAID's role in the Feed the Future initiative
as well as activities to improve nutrition and strengthen agricultural
value chains.
Thank you for the opportunity to address the Subcommittee on this
very important component of U.S. foreign assistance. We appreciate the
Subcommittee's interest in and support of our oversight efforts and
welcome the opportunity to learn more about your interests and concerns
as we continue to work to help ensure that foreign assistance programs
operate as effectively and efficiently as possible. I would be happy to
answer any questions you may have at this time.

The Chairman. We will need to move to the next witness. I
have let you go about----
Ms. Trujillo. I am so sorry.
The Chairman.--about 2 minutes over. That is okay. You can
make it up during the answering of questions.
Ms. Trujillo. I apologize.
The Chairman. No problem. Mr. DeSmet?

STATEMENT OF RODNEY G. DeSMET, DEPUTY ASSISTANT
INSPECTOR GENERAL FOR AUDIT, USDA OFFICE OF
INSPECTOR GENERAL, WASHINGTON, DC.

Mr. DeSmet. Good morning, Chairman Rouzer, Ranking Member
Costa, and Members of the Subcommittee. Thank you for this
opportunity to discuss OIG's oversight of USDA' Food for
Progress program. As you know, a large part of OIG's mission is
to promote the efficiency and effectiveness of USDA programs,
such as Food for Progress, by performing audits to reduce
fraud, waste, and abuse. Our audits are designed to determine
if programs are functioning as intended, and when we identify
problems, we make recommendations that we believe will help
USDA agencies better accomplish their missions.
FAS administers the Food for Progress program through
agreements with various entities, including private voluntary
organizations, or PVOs. FAS's responsibilities include
monitoring these agreements, including the receipt and
disposition of donated commodities, in-country oversight, and
close out reviews.
Since 1999 OIG has conducted three audits addressing FAS's
administration of the Food for Progress program. In these
audits we evaluated the effectiveness of FAS's implementation
of its corrective actions to prior audit recommendations.
Although we have found improvements in FAS's administration of
the program, we continue to report systemic internal control
weaknesses. Many of these weaknesses could have been mitigated
if FAS had effectively implemented corrective actions in
response to OIG's earlier recommendations.
In response to our 1999 audit, FAS agreed to strengthen its
management controls. However, in 2006, we found that FAS had
not effectively implemented corrective actions to address
previously reported weaknesses in its oversight of PVO
agreements. We reported that FAS controls for monitoring PVOs
could not provide reasonable assurance that USDA program
objectives were being met, or that funds were being spent
appropriately.
OIG commends FAS for taking several positive actions in
response to our 2006 audit. However, many of the systemic
deficiencies identified in 1999 and 2006 continue. In our 2014
report, OIG again reported that FAS does not have effective
controls in place to monitor and close out its agreements with
the PVOs. These weaknesses resulted in questioned and
unsupported costs totaling over $685,000. As a result of these
findings, OIG specifically recommended that FAS designate a
senior management official with sufficient authority to ensure
that all current and prior recommendations are fully addressed
in a timely manner.
GAO, and private consulting firms contracted by FAS, have
reported similar internal control weaknesses. In 2011 GAO
recommended that FAS establish a monitoring process for
measuring program progress and develop policies and procedures
for closing out grant agreements. And in 2013, a private
consultant reported that FAS still has significant internal
control issues with respect to oversight and accountability.
Based on our audits, together with work from GAO and
independent consultants, we concluded that until FAS
strengthens its management oversight and accountability, it
cannot ensure that Federal resources expended on the Food for
Progress program are being efficiently and effectively
utilized.
This concludes my testimony. I again want to thank the
Subcommittee for the opportunity to brief you today, and I
welcome any questions you may have.
[The prepared statement of Mr. DeSmet follows:]

Prepared Statement of Rodney G. DeSmet, Deputy Assistant Inspector
General for Audit, Office of Inspector General, U.S. Department of
Agriculture, Washington, D.C.
Good morning, Chairman Rouzer, Ranking Member Costa, and Members of
the Subcommittee. I thank you for inviting me to testify before you
today to discuss the Office of Inspector General's (OIG) oversight of
the Department of Agriculture's (USDA) Food for Progress Program. As
you know, a large part of OIG's mission is to promote the efficiency
and effectiveness of USDA programs, such as Food for Progress, by
performing audits to reduce fraud, waste, and abuse. Our audits are
designed to determine if a program is functioning as intended, if
program payments are reaching intended recipients, and if funds are
achieving their intended purpose. When we identify problems, we make
recommendations that we believe will help USDA agencies better
accomplish their missions.
To avert famine and encourage economic development, USDA supports
food aid programs in many countries worldwide. Within the Department,
the Foreign Agricultural Service (FAS) is responsible for administering
food aid programs through several program authorities. The first is
Public Law 83-480, Titles I and II,\1\ which are the primary means by
which the United States provides foreign food assistance. Another is
the McGovern-Dole International Food for Education and Child Nutrition
Program (McGovern-Dole Program),\2\ which supports the donation of U.S.
agricultural commodities as well as financial and technical assistance
to carry out school meal programs in foreign countries. Maternal,
infant, and child nutrition programs also are authorized under the
McGovern-Dole Program. The Food for Progress Program, which is the
topic of this hearing, was authorized by the Food for Progress Act of
1985.\3\ This Act authorizes the provision of U.S. agricultural
commodities to both developing countries and emerging democracies with
demonstrated commitments to free enterprise in their agrarian
economies.
---------------------------------------------------------------------------
\1\ Agricultural Trade Development and Assistance Act of 1954, 83
Pub. L. No. 480.
\2\ 7 U.S.C. 1736o-1.
\3\ 7 U.S.C. 1736o.
---------------------------------------------------------------------------
FAS administers the Food for Progress Program through agreements
with foreign governments, nonprofit agricultural organizations,
cooperatives, intergovernmental organizations, and private voluntary
organizations (PVOs). PVOs are charitable, nonprofit organizations. The
Food for Progress Act provides for the use of Commodity Credit
Corporation (CCC) funding for commodity procurement, transportation,
and associated non-commodity program costs. For Fiscal Year 2016, the
Department plans to budget $135 million in CCC funding for the Food for
Progress Program. Under this program, participants use the donated
commodities (or proceeds from the monetization of such commodities) to
promote humanitarian and developmental activities, pursuant to their
agreement with CCC. CCC funds are used to cover expenses involved in
the administration and monitoring of the food aid activities under the
agreements. Congress reauthorized the Food for Progress Program in the
Agricultural Act of 2014.\4\
---------------------------------------------------------------------------
\4\ 113 Pub. L. No. 79, 3201.
---------------------------------------------------------------------------
Within FAS, the Office of Capacity Building and Development (OCBD),
Food Assistance Division (FAD) is responsible for administering and
evaluating Food for Progress Program agreements from the proposal stage
through the duration of the agreements. FAD's responsibilities include
monitoring agreements through a review of required reports--including
the receipt and disposition of donated CCC commodities--as well as in-
country oversight of project operations and close-out reviews to assess
the PVOs' administration of foreign food aid from start to finish.\5\
---------------------------------------------------------------------------
\5\ OIG Audit 07601-0001-22, Private Voluntary Organization Grant
Fund Accountability, March 2014.
---------------------------------------------------------------------------
Since 1999, the Office of Audit has conducted a number of audits
addressing FAS' administration of the food aid programs; our last
report was issued in March 2014. In these audits, we have evaluated the
effectiveness of FAS' implementation of its agreed--to corrective
actions to earlier audit recommendations. Although we have found
improvements in FAS' administration of the Food for Progress Program,
we continue to report systemic internal control weaknesses in FAS'
administration of this Program. Many of these internal control
deficiencies could have been mitigated if FAS had effectively
implemented its agreed-to corrective actions in response to OIG's
earlier recommendations. Furthermore, we have found a number of
reviews--issued by the Government Accountability Office (GAO) and
private consulting firms contracted by FAS--which report similar
internal control weaknesses.
Specifically, we reported in 2006 that, although six of eight
reviewed PVOs generally complied with their agreements, FAS' controls
for monitoring PVOs could not provide reasonable assurance that USDA's
program objectives were being met--or that funds were being spent
appropriately. OIG concluded that, due to these internal control
weaknesses, one PVO was not held accountable for violations of its
grant agreements leading to the loss of $2.2 million. Although FAS
learned about possible grant irregularities in November and December of
2000, it still had not, as of OIG's 2006 report, reviewed the PVO's
compliance with its agreements.\6\
---------------------------------------------------------------------------
\6\ OIG Audit 07016-1-At, Foreign Agricultural Service Private
Voluntary Organization Grant Fund Accountability, March 2006.
---------------------------------------------------------------------------
Several years earlier, in response to OIG's March 1999 audit, FAS
agreed to strengthen significant aspects of its management controls.
However, OIG's 2006 review found that the agency did not effectively
implement corrective actions to address previously reported weaknesses
in FAS' oversight of PVO agreements.\7\ FAS officials explained that,
though they had attempted to obtain adequate funding and staffing to
review PVOs' use of agreement monies, they nevertheless had fallen
short of the level of oversight recommended by OIG.
---------------------------------------------------------------------------
\7\ OIG Audit 50801-6-At, FAS Food for Progress Program PVOs Grant
Fund Accountability, March 1999.
---------------------------------------------------------------------------
OIG commends FAS for taking several positive actions in response to
the March 2006 audit, such as developing and implementing a Food Aid
Information System for administering food aid agreements; providing
staff training; issuing new regulations; and hiring consultants to
assess management controls over food aid programs. However, many of the
systemic deficiencies identified in our 1999 and 2006 audits persist.
In our 2014 audit, OIG continued to report management control
weaknesses in FAS' Food for Progress Program. For example, OIG reported
that FAS does not have effective controls in place to monitor and close
out its agreements with PVOs. Further, OIG found that FAS' internal
controls did not ensure: (1) that PVOs reported financial information
completely and accurately in their semiannual reports; (2) that PVOs
established separate bank accounts to administer agreements; (3) that
interest earnings on advanced CCC administrative funds held in
interest-bearing accounts were reported and returned to FAS; and (4)
that completed agreements were timely and properly closed out. These
weaknesses resulted in questioned and unsupported costs totaling over
$685,000. In response to these findings, OIG specifically recommended
in 2014 that FAS designate a senior management official, who has
sufficient authority, to ensure all current and prior recommendations
are fully addressed in a timely manner.
In addition to OIG's findings in 1999, 2006, and 2014, GAO and a
number of independent consultants contracted by FAS also have reported
ongoing deficiencies with FAS' management controls and oversight. In
May 2011, GAO issued an audit of FAS' McGovern-Dole Program and
recommended that FAS establish a monitoring process for measuring
program progress and develop policies and procedures for evaluating
completed projects and closing out grant agreements. FAS agreed with
GAO's recommendations, acknowledging that proper monitoring and
evaluation are essential to improving management oversight of the
McGovern-Dole Program.\8\
---------------------------------------------------------------------------
\8\ GAO-11-544, International School Feeding: USDA's Oversight of
the McGovern-Dole Food for Education Program Needs Improvement, May
2011.
---------------------------------------------------------------------------
FAS also has contracted with a number of independent consultants,
who have found similar weaknesses in FAS' control environment. One of
these consultants performed an internal control and corrective action
assessment of the Food for Progress Program and the McGovern-Dole
Program. In its 2013 report, this consultant found that, ``FAS has made
incremental progress towards remediating these [earlier reported]
findings and recommendations; however, overall corrective actions have
not been fully implemented and there remain several deficiencies that
exist within current processes.'' This report also found that ``the
deficiencies identified in this assessment in addition to the recurring
concerns identified in prior audits demonstrate that FAS still has
significant internal control issues with respect to oversight and
accountability of operations.'' \9\
---------------------------------------------------------------------------
\9\ Morgan Franklin Consulting, Foreign Agricultural Service--Food
for Progress and McGovern Dole Program Assessment, September 2013.
---------------------------------------------------------------------------
Based on our reports, together with reports from GAO and
independent consultants, we believe that, until FAS significantly
strengthens its management oversight and accountability, it cannot
ensure that Federal resources expended on food assistance programs are
used efficiently and effectively to relieve global food crises and to
encourage economic development. This concludes my written statement. I
again want to thank the Subcommittee for the opportunity to testify
today. I welcome any questions you may have.

The Chairman. Thank you very much. We will each have 5
minutes for questions, and I am going to start off with Mr.
Melito.
It is my understanding that section 202(e) funds may be
used to augment those funds specifically allotted for
monitoring oversight and evaluation. However, it seems that
USAID, especially after the changes made in the last farm bill,
is more focused on using section 202(e) funds for cash-based
assistance that is already possible through the separate
Emergency Food Security Program. Do you agree with that
assessment, and do you think that section 202(e) funds could be
used more efficiently to improve the monitoring of deficiencies
identified in your work?
Mr. Melito. We recognize that the Farm Bill of 2014 gave
USAID more flexibility for using section 202(e), and also
increased the funding by about 50 percent. We are in
conversations with your staff about actually looking at how
those funds are being used. We currently don't have a good
handle on exactly how USAID is using those funds, but one of
the things we definitely want to understand is whether or not
they are taking advantage of the flexibilities they have for
monitoring and evaluation. That is an area where we have
concern--haven't been done enough--and section 202(e) does seem
like a funding source for them to actually address these
deficiencies.
The Chairman. Ms. Trujillo, we sometimes hear about
inefficiencies with in-kind donations, but USAID OIG's body of
work suggests that most problems with in-kind assistance are
due to the on-the-ground implementation issues, and a general
lack of oversight and monitoring. In other words, it sounds
like most of what you have observed is simply the result of
USAID's mismanagement of the authorities already granted, and
failure to act on a litany of recommendations OIG has made. Is
that a fair assessment, in your view?
Ms. Trujillo. As I shared in my testimony, we have covered,
in the last 5 years, 12 different audits and reviews. Looking
across the entire body of work, monitoring has been an issue
that we have identified as a cause for many of the problems
that we have seen in the management of these programs.
So we have reported that as a program deficiency with
USAID's oversight, and also too the oversight responsibilities
that the different implementing partners are responsible to do
as well. As part of their plans they are required to identify
their monitoring plans. And we often find those plans lacking
in implementation.
The Chairman. Well, as a natural follow up, could we not
see the same, if not worse, problems with cash-based
assistance?
Ms. Trujillo. And as I mentioned, there is risk that is
inherent in everything that USAID does. Whether they are using
any type of cash modalities, local regional purchases, or the
in-kind, yes, if there are vulnerabilities, and USAID is not
taking the appropriate actions to mitigate those
vulnerabilities and those risks, we are going to see losses,
and we are going to see a higher risk of loss in those areas.
USAID works in the environments, as Congressman Costa said,
that are vulnerable for fraud, waste, and abuse, so it is
critical that those internal controls and those mechanisms are
put in place for any kind of modality that USAID uses.
The Chairman. Mr. Melito, in our last hearing it was
implied by USAID that delivery of immediate cash was very
limited. Yet, as many of you know, during a full Committee
hearing I sit almost up there at the witness table, I heard
this firsthand. The USAID witness stated it is not cash in
terms of $100 bills, it is vouchers. Now, is it true that cash
assistance is only in the form of vouchers, or are you aware of
cases where USAID is indeed handing out cold, hard cash for
food assistance?
Mr. Melito. Mr. Chairman, we are well aware of the use of
physical cash in the system, and my team observed the
distribution of cash in both Niger and in Kenya.
The Chairman. That completes my questioning. Mr. Costa?
Mr. Costa. Yes. Thank you, Mr. Chairman, and I want to
apologize in advance to the Members of the Subcommittee and
witnesses. I have another hearing going on concurrently on an
important piece of legislation affecting California and the
drought conditions, so I am going to ask these questions in the
next 5 minutes, and that will probably be the extent of my
presence for this morning.
For all the witnesses, you have given your pros and cons on
direct food aid versus cash-based assistance. Let me just ask
all three of you on your preference. Mr. Melito, direct food
aid or cash-based assistance?
Mr. Melito. They are both the right choice in certain
circumstances, and they are wrong in the other. And part of
what we are doing now at GAO is a follow on study to try to
understand when those circumstances are correct.
Mr. Costa. Ms. Trujillo?
Ms. Trujillo. I have to echo Mr. Melito's comments. USAID
has to make complex decisions on how they are going to balance
that, and it is important that those----
Mr. Costa. You are saying one size doesn't fit all?
Ms. Trujillo. One size does not fit all, correct.
Mr. Costa. Okay. And do you agree, Mr. DeSmet?
Mr. DeSmet. Sir, USDA has not done any work on the cash-
based side.
Mr. Costa. Now, it is interesting, because as a part of our
fact finding we find ourselves in different parts of the world,
and when we get our mission briefing at embassies, they are
usually as a representative of the USDA. I would assume that
the USDA representative in our embassy there in this country
that is providing where support is being received, either cash-
based or direct food aid, would have a sense, along with some
other elements of the embassy, as to what is the best way to
provide that. I mean, is that some sort of a consultation
process? How is the decision ultimately made as to which size
fits?
Mr. Melito. When we were looking at the grant approvals for
the cash program, it was a dialogue between the implementing
partners and USAID, and it did involve issues of how quickly
the food may be needed for the emergency, the availability of
food in the market itself, because if there isn't food in the
market, then a cash program is not going to work, as well as
the appropriateness of it. There was a discussion between USAID
and the implementing partner on these factors, and they did
basically make the justification for cash once they determined
that those three factors were met.
Mr. Costa. Did you find there is a more likelihood or
evidence that cash or vouchers are more likely to be diverted,
or used more fraudulently, than in-kind food commodities?
Mr. Melito. GAO has raised concerns about diversion for
both the cash program and the commodity program, and in both
cases one area where we really wish they would improve is
measurement of loss. That would become a statistic that you
would use to see whether the program is improving over time,
and the measurement of loss is weak for both the commodity
program and the cash program.
Mr. Costa. Did your study end up taking a look at what
other contributors, of the international community--there are
folks in the EU and others that also provide support and
assistance--whether they were providing in-kind food donations
or cash?
Mr. Melito. Almost every other donor in the world provides
resources through the World Food Programme, and then lets the
World Food Programme decide how to use those resources. So, for
the most part, they are giving money to the World Food
Programme to either buy commodities or to provide cash. The
U.S. Government, while being the largest provider of all
modalities, is also the only one providing physical commodities
in any large number.
Mr. Costa. Ms. Trujillo, your investigation revealed areas
of increased risk for fraud or diversion with cash or voucher
distribution programs in U.S. commodities. If, in fact, those
that you have discovered, and some you noted in your testimony,
what efforts are you making to implement to the partner or the
suspects what that fraudulent activity is doing, and what
actions do you take?
Ms. Trujillo. Thank you for that question. Our
investigators are very aggressive, as I mentioned, in following
up with any allegations of criminal acts or fraud. In the cases
where the investigations have concluded that a criminal act was
done, we work with the Department of Justice, we work to get
these cases----
Mr. Costa. On a case by case basis? Are you working with
the embassies as well in these countries?
Ms. Trujillo. Well, if it is an American-based implementer,
we will be working through--with--notifying the embassy, but we
are working largely with the Justice Department here in the
United States to resolve these and take actions.
Mr. Costa. No, I am just wondering, but with cutback of
resources, we have these embassies there on the ground, they
are where the rubber meets the road. Most of these embassies,
to the degree they are staffed up, have a lot of resources, and
they know kind of what is going on in the country, and where
the--most of the corruption lies.
Ms. Trujillo. Yes.
Mr. Costa. So it seems to me--and a lot of times USDA or
others have people in those embassies.
Ms. Trujillo. Right.
Mr. Costa. So I am just trying to understand----
Ms. Trujillo. Right.
Mr. Costa.--if you work with them as well.
Ms. Trujillo. We do have investigators that are actually
posted overseas, and we cover USAID regionally through these
overseas offices. These investigators do collaborate with the
other law enforcement agencies that are there, so there is
coordinated investigative efforts on any allegations of fraud,
especially those that cut across the different agencies there,
yes.
Mr. Costa. Thank you very much. My time has expired.
The Chairman. I noticed that the Chairman of the Committee,
has just arrived.
Mr. Conaway. I will ask questions in the correct order.
The Chairman. Very good. I will turn to our friend from
Florida, Mr. Yoho.
Mr. Yoho. Thank you, Mr. Chairman, I appreciate this
important Committee hearing. I appreciate you all being here.
Mr. Melito, I appreciate your directness and unfettered
reports.
The purpose is to make sure that the money that the
American people are taxed for to provide relief to people in
need go to the people that it was intended to. And when I look
at the Public Law, this is not something new we are doing. We
might be going into a new era, but when I look at the 1954
Public Law on agricultural trade and development, it states the
law's original purpose was to expand international trade to
promote economic stability of the American agriculture, to make
maximum use of surplus ag commodities in the furtherance of
foreign policy, and to stimulate the expansion of foreign trade
in agricultural commodity products in the U.S.
And, of course, it has morphed since then, now it is a
humanitarian goal, in addition to those others. And I find
disturbing that--Ms. Trujillo, you were talking about that it
took you 4 years to find a deficiency in the program, yet it
hasn't been corrected. Take me through the process of you going
into a country--because I know we have conflict countries, and
we have non-conflict countries. Going into a country to set up
a program where you set up that program, you initiate it,
whether it is food, whether it is vouchers, whether it is
cash--and I agree 100 percent with Mr. Costa's assessment. I
would rather give commodities. I know it is more expensive, but
it is more representative of America, and the taxpayers would
be better served by doing that, as our farmers would be.
So when you go into a country, and you set up a program, I
would assume you have a program that says, all right, this is
the beginning of it, and we are going to distribute throughout
the region, and these are the metrics we are going to set up,
and we are going to follow those so that we can measure so
there is no fraud, there is no waste, there is no abuse. How do
you do that, and if you do it properly, there shouldn't be a
miscommunication of where would the money go?
Ms. Trujillo. Thank you for that question. It is USAID's
responsibility to identify up front, as part of their program
design, what are those risk factors that they need to consider
in doing exactly what you are talking about. When they set up a
program in country--much of the Food for Peace programs are
centrally managed here out of Washington, so Washington should
be involved in that. They set up those metrics. They set up
what those controls are, and they should be monitoring that.
That is their responsibility. Our responsibility, as an
oversight body, is to make sure that those processes and
procedures are being followed.
Now, why did----
Mr. Yoho. Okay, I am going to interrupt you----
Ms. Trujillo. Why----
Mr. Yoho.--there. You are supposed to monitor and make sure
they are being followed, but yet when I look at what Mr. DeSmet
said, that FAS, since 1999--OIG recommended they make these
changes, that is 16 years it takes. It sounds like the changes
weren't made to be held accountable. Why is that?
Ms. Trujillo. Is this for Mr.----
Mr. Yoho. Well, you are the one on the ground. He is up in
Washington. I would like to hear from both of you, if I have
time.
Mr. DeSmet. Again, FAS has made changes, and has responded
to each of our recommendations, in 1999, and 2006, and 2014.
What we found, though, is----
Mr. Yoho. I think you said they didn't do it in a timely
manner.
Mr. DeSmet. They did not, and they didn't go far enough.
They come back, and in the last audit we did, and in the 2006
audit also, they come back with staff--they did not have the
staff and the resources to implement all of their changes
timely, and they prioritized their resources to get the grants
out, rather than on monitoring and closing out the----
Mr. Yoho. I come from the private-sector, and if we had a
business that was running like that, and we tasked people to
manage that business, and they don't perform that way, we would
fire that person. And if you are set up to have it staffed to
do that, why are people not being held accountable for that?
Because, I have to go back to my district and sell to the
people in my district that we are giving cash to foreign
countries, yet I have people struggling in my district. And I
just find it unconscionable that we are not doing a better job
spending the American taxpayers' money in a responsible manner.
I am about out of time, but go ahead, quickly.
Ms. Trujillo. Well, I just wanted to mention, our oversight
effort is on the ground, as you mentioned. We are looking at
the activity. So for every one of these examples that I gave
you, we provided recommendations to address the cause for why
monitoring wasn't happening effectively. It is USAID's
responsibility, and we followed up with those actions that they
have taken.
So for that one particular activity, we will go back, and
we will look to see, have those actions been implemented? And
often the case it hasn't. That has been one activity. USAID
implements hundreds of activities. So----
Mr. Yoho. I am out of time. I appreciate it, Mr.----
Ms. Trujillo. Okay.
Mr. Yoho.--Chairman. I yield back. Thank you.
The Chairman. Ms. Plaskett?
Ms. Plaskett. Yes, good morning. I was looking at your
statement, Ms. Trujillo, and I saw that you talked about over-
reporting. There are problems of under-reporting and over-
reporting, and that then plays a part in your determining
whether there are efficiencies in the program. What would be
over-reporting, and how would that impact your reports?
Ms. Trujillo. Well, that particular issue was discussed
when we talked about data quality. Data is important. Data is
what is used to make decisions. And in this particular case, an
implementer is identifying to USAID and reporting that they
have reached a certain number of beneficiaries. And when we go
out and we verify the information that they have stored, their
data, we identify that, no, they either misrepresented that
number because of errors in their monitoring and evaluation
system, so they are over-reporting what they have actually
achieved on that one particular activity. And that is what we
meant by that.
Ms. Plaskett. Okay. And could you explain, you may have
done it previously, cash transfers? I don't know which witness
would best be able to do that for me. What exactly are cash
transfers, and how do they work in the food aid context?
Mr. Melito. The use of cash is done in one of four ways.
Ms. Plaskett. Yes.
Mr. Melito. In one extreme it is the actual passing out of
physical cash. Then there is the use of a financial
institution, so you would have money that the beneficiary can
go and receive from the bank, or a bank-like entity. And then
there are two types of vouchers. There are physical vouchers,
and then there are electronic cards that function like a
voucher. Those would be the four ways that cash transfers are
used.
Ms. Plaskett. And it is determined by what, the
efficiencies in the particular area that that money is going to
be used?
Mr. Melito. The determination is multi-faceted, but for
either extreme it is basically on how developed the financial
system is. You couldn't use an electronic voucher in places
that don't have a financial institution that can use it. We are
seeing it in Jordan, which has a fairly developed financial
system, but we didn't see it in Niger, in a rural area of
Niger, where you had to basically rely on much more traditional
methods. And there we actually saw the use of physical cash. So
once they have determined they are going to use a cash-type
transfer, they then figure out the modality that seems most
appropriate for that particular beneficiary.
Ms. Plaskett. In your estimation, what is the likelihood--
are we going to be going to more cash, or will this be stable,
or will we still have the continuance of commodities going to
these countries?
Mr. Melito. The use of cash has grown steadily since 2010,
but it has come out of the EFSP, which is the 150 account on
the foreign assistance side. The use of commodities has
remained steady under Title II during this time, so----
Ms. Plaskett. So has there been a decrease in commodities
going?
Mr. Melito. No, there has not. The decrease, only in terms
of the tonnage, goes up and down based on price and such, but
the program has been steadily funded, and that is still the
single largest modality.
Ms. Plaskett. So you say the tonnage goes up and down based
on price, or based on the need that are in specific areas that
you have identified?
Mr. Melito. It is both. It fluctuates between about $1\1/2\
billion to $2 billion a year, based on whether or not there is
a new emergency that is coming out, but then the price of food
itself does determine tonnage as well.
Ms. Plaskett. So if food is costing more, then we are
sending less?
Mr. Melito. There are times when high prices of food does
impact the tonnage, yes.
Ms. Plaskett. Even if the need is still there?
Mr. Melito. Well, this is one of the reasons USAID would
like to have flexibility, because they also want to be able to
purchase food locally and regionally, where the prices may be
better or use cash. The opportunities that the three modalities
of cash, local regional procurement, and U.S. commodities give
them is to basically try to smooth out those kind of
uncertainties.
Ms. Plaskett. And in areas--and I am running out of time
quickly. In areas where they do not have their own crops, or
the means to purchase any foods, what are we doing in the long-
term, aside from just the commodities in those areas?
Mr. Melito. Well, under the Feed the Future initiative,
they are trying very hard right now to improve agricultural
productivity across the world. And I am sure, in countries like
that, the focus is not just on the immediate need, but on
dealing with the chronic underlying problem.
Ms. Plaskett. Okay. Thank you. Thank you, Mr. Chairman.
The Chairman. Mr. King from Iowa?
Mr. King. Thank you, Mr. Chairman. I appreciate this
hearing, and I appreciate the witnesses. It raises my
curiosity, Ms. Trujillo, when you talked about some of the aid
being siphoned off in Africa, and I would ask if you could
flesh that out a little bit more on which countries, and how
that actually happened?
Ms. Trujillo. This was the situation in East Africa, where
it was commodities--it was wheat that was siphoned off, taken
to a milling factory, made into flour, and then sold
internationally.
Mr. King. And what country?
Ms. Trujillo. You know what, I don't have--forgive me.
Mr. King. Just----
Ms. Trujillo. Can I get back to you----
Mr. King. That is fine. If you could get back to us after
the hearing, that would be fine.
Ms. Trujillo. Okay.
[The information referred to is located on p. 43.]
Mr. King. I wanted to also ask you about the coordination
of food aid to those who are receiving anti-retroviral drugs.
Can you talk a little bit about that kind of coordination, just
for the benefit of the Committee, in case we haven't come
across that, that those drugs are not particularly effective
unless there is high protein food also that goes along with
them. And if we ensure that the people that are taking anti-
retroviral drugs also have access, especially to high protein
food, then the drugs are effective. If they are not, the drugs
aren't effective.
What about the level of coordination so that we are
ensuring that high protein nutrition is available to the people
that are also receiving medication that are HIV positive?
Ms. Trujillo. When we design our audits to look at USAID's
programs that are intended to reach individuals who have these
nutritional needs, we look to that to see if the commodities,
the food that they are getting, is being distributed in
accordance with the way they intended to distribute it. If we
were to identify in any situation that those populations were
not getting that, that would be one of our findings in our
report.
Mr. King. Is----
Ms. Trujillo. As far as coordination, I can't speak to that
specifically----
Mr. King. Yes.
Ms. Trujillo.--the level of coordination.
Mr. King. You are talking about a report that is written,
or one that will be written?
Ms. Trujillo. No, I am just saying that, in the course of
our oversight work, I mean, we conduct performance audits----
Mr. King. Yes.
Ms. Trujillo.--for the purposes of determining if USAID is
achieving its intended results. For example, I spoke to a
situation in Haiti where we identified that a consortium of
implementers were using inconsistent distribution practices,
and we noted a population of mothers with infants who should
have been getting more nutritional assistance, more nutritional
help, but they were overlooked because of these inconsistent
practices.
Mr. King. Could you explain what an inconsistent
distribution practice is when you use that vernacular?
Ms. Trujillo. Yes, I can. I apologize for my technical
vernacular. USAID uses one implementer, who then might be sub-
implementing with other partners. Each partner has maybe a
geographic responsibility. The concern, and what we have
brought up many times, is that even though USAID is working
with one partner, who is working with four partners, everyone
is pretty much working how they see as it best fits their
needs.
But sometimes there are best practices that could be
adopted across all of the implementing partners to ensure that
there is fairness and equity across all the distributions. We
don't see that. Sometimes somebody is doing a practice that is
much better than others, but it is not being effectively
coordinated.
Mr. King. Sometimes someone will come up with a very good
idea and make it more efficient----
Ms. Trujillo. Yes.
Mr. King.--as well as sometimes it gets out of control. It
is the----
Ms. Trujillo. Correct.
Mr. King.--nature of the beast.
Ms. Trujillo. So we see more efficient work in one area
than we see in the other, and it is under the same program.
Mr. King. Yes. I am also interested: is there essentially a
holistic view of this, particularly in Africa, where, if they
had irrigation water, they have soil that would produce. Are
you aware that there is any effort putting together a package
that could eventually transition us out of this food aid and
into the support for ag production so that they could sustain
themselves?
Ms. Trujillo. Well, that is what I was going to end with,
before I ran out of time. Our ongoing effort, moving forward,
we are going to be focusing on Feed the Future, and looking at
exactly this. We are going to be looking at how USAID is
implementing programs to improve agricultural value chains, to
teach new technologies to farmers so that they can be more
productive.
So this is going to be a focus not only with Feed the
Future in Haiti, and in--I lost my train of thought on the next
one. But anyway, we have our plan moving forward for 2016, and
we have identified Feed the Future as one of our priority areas
moving----
Mr. King. That is fine, thank you. I will be very
interested in that as that unfolds. I appreciate it, and I
yield back, Mr. Chairman.
The Chairman. Thank you, Mr. King. Mr. Kelly? And again,
welcome to the Subcommittee.
Mr. Kelly. Thank you, Mr. Chairman, and thank you to the
witnesses for being here today. Just a few brief questions.
Number one, what percentage now of our aid goes with in-kind
versus cash? What percentage would you say is each?
Mr. Melito. It is a rough number, when you combine both
Title II and the Emergency Food Security Program (EFSP), it is
about 55, 60 percent in-kind, and the rest is local and
regional procurement (LRP) or cash.
Mr. Kelly. Okay. A follow up on that, and more of a
statement than a question. The question will follow. I think it
is inherently important that we understand the value of when we
send these in-kind, the presence of USAID on the side, USAID on
the side of those bags, and people seeing those, that shows our
presence there, and we lose that with the invisibility of cash,
or those type of transactions. So I think that is important to
show that we are helping the world when we are doing that.
What basis--and I know you have kind of answered this, so
basis is probably not the--quite the answer I am looking for.
What criteria are you using to determine whether or not it is
in-kind versus a cash transaction? Are those things like the
maturity and the corruption level of a government, or are they
the location of that government, what criteria is used, if you
can explain that?
Mr. Melito. So we explained, on the program side, what they
are looking at to decide whether cash was the right modality,
and that included the need for speed--if the crisis was
unfolding rapidly, whether or not there is actually food
available in the market, because if there isn't food available
in the market, then you don't want to bring cash into it. You
will have price increases without any benefit. And then,
finally, whether you are more likely to get appropriate food to
the beneficiary. So this is all on performance side. We
observed that they did not do what we called comprehensive risk
assessments on the financial control side.
So the market itself may be appropriate because there is
enough food available that you bring cash in, and it could
work, but you also need to determine whether or not there is a
financial entity on the other side you can trust and work with,
and you need to make sure that you have mitigation strategies
in place if financial problems arise. So there are two sides to
this. There is making the program effective, in terms of
feeding people, but also there is a side of making sure the
proper accountability for the funds is in place.
Mr. Kelly. And again, I just want to make sure that we are
doing the best thing to get food in the hands of those who most
need it. And from a little bit of different perspective that I
had, in my 2005 tour in Iraq, we had to deal a lot with local
governments, and I had to deal with 3\1/2\ different provinces.
And so with each of those local governments within that nation,
we dealt differently in how we distributed relief, or products,
or whatever we were dealing with to those local governments
based on the local governments. How can you give me a comfort
level that we are doing the same thing with USAID to make sure
that the right, whether in-kind or cash, is going to the right
person which best assists us in getting food in the right
people's hands?
Mr. Melito. We did observe several distributions of either
cash or vouchers for our case study countries, and as part of
the distribution, we made sure that the basic control
structures were in place. They had a verified list of
beneficiaries in advance. There was an attempt to make sure
that the person who was coming forward was the person who was
on that list. There was something like a thumbprint recorded to
demonstrate that that person was that person. We also looked at
the reconciliation process on the other end.
We did find some level of assurance that we wanted to see,
but there were still weaknesses.
Ms. Trujillo. And as well, if I could just add, during the
course of our work, as I said, we are on the ground. We will
verify with the beneficiaries, asking them did they know, first
of all, what they were supposed to receive, and did they
receive it? And we try to verify what was the quality of it,
and is it helping as it was intended to help?
Mr. Kelly. Mr. Chairman, I yield back the remainder of my
time.
The Chairman. I now recognize the Chairman of the full
Committee, Mr. Conaway.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
IN CONGRESS FROM TEXAS

Mr. Conaway. Well, thank you, Mr. Chairman. Thank you all
for being here. In how many countries do we operate food
programs, including any of the three modalities?
Mr. Melito. I am going to probably have to get back to you.
There were 28 countries for cash, but the number is in excess
of 40, when you bring all the modalities. But I will get back
to you with that.
[The information referred to is located on p. 43.]
Mr. Conaway. So then a range of 40?
Mr. Melito. Yes.
Mr. Conaway. I mean, no one modality fits any one country
particularly, in terms of these kind of questions.
Mr. Melito. They are generally using multiple modality----
Mr. Conaway. Ms. Trujillo, you talked about a case in East
Africa with theft on an industrial scale. How do we make sure
that the folks who perpetrated that problem--and they may or
may not be prosecuted locally--but how do we make sure that we
are not dealing with those folks again 2 years later because of
exigencies on the ground that allow these folks to come back
into the system? How do we know that we are not still dealing
with the bad guys? And, again, there are 40 countries, so you
have 40 answers, I guess.
Ms. Trujillo. And that is a very important question.
Mr. Conaway. I wouldn't have asked it otherwise.
Ms. Trujillo. Yes, that is a very important question, yes.
When we do meet a lot of bad guys, and so we coordinate
closely with USAID. We work to have either the individual or
the company debarred, suspended, so that they cannot----
Mr. Conaway. But in each of these countries, are their
reporting systems good enough that the local USAID folks, who
turn over from time to time, don't we wind up working with the
same bad actors, 4 years down the road?
Ms. Trujillo. Well----
Yes. Well, all of these risks need to be considered in the
actual procurement.
Mr. Conaway. And who does that? Is there a local USAID
person on the ground that has full responsibility deciding who
is the implementer or who is not?
Ms. Trujillo. Where USAID operates, in the mission office,
which they operate in close to 100 countries, there are
contracting officers and agreement officers who have that
responsibility to take proper due diligence, and ensure that,
during the solicitation process and the award process, that
there are decisions made, and they have gone through and
determined if there are any individuals who shouldn't be
receiving awards, they are not getting it. Now, is it
foolproof?
Mr. Conaway. Yes.
Ms. Trujillo. You will----
Mr. Conaway. You have a fighting chance though, right?
Ms. Trujillo.--see people move from one to the other, and
they have had problems with one, and you see them pop up in
another, and that is when we hear about that, from an
investigative standpoint. As I have mentioned in my testimony,
we are very aggressive at following up on these types of
activities and any allegations of----
Mr. Conaway. Yes. About Haiti, have you found duplication
across Food for Peace and other activities in Haiti, where
Title II programs are overlapping with other USAID activities?
Ms. Trujillo. Well, USAID, as you know, in Haiti they run a
mission as well that has all the sectors. They work in
agricultural and development, health, education. On those
portfolios, where they are also trying to reach beneficiaries
to help them with health issues, and with food issues, they are
running programs. The Food for Peace office is running programs
as well. And in these cases, where there is a lack of
coordination between the two offices within USAID, we have seen
where activities have actually gone on top of each other.
Mr. Conaway. That can't be an official policy, that they
don't operate together. There has to be some sort of a policy
statement that they coordinate. Is that failure personality
driven? Is this a case where the people running Food for Peace
and the other programs didn't get along, or they just didn't
care? What was the issue there?
Ms. Trujillo. No. The policy is that they are supposed to
make sure that they----
Mr. Conaway. All right. In this instance, why didn't these
two folks speak to each other?
Ms. Trujillo. My experience, because I have worked in the
field for many years, I have seen oftentimes, as you have,
especially in an emergency situation like Haiti, where you have
many implementers trying to get on the ground and roll out
activities quickly, oftentimes coordination amongst the offices
are hindered.
Mr. Conaway. So, was this particular sentence in your
testimony related to an emergency circumstance like that, or
was it a long running inability to coordinate with each other?
Ms. Trujillo. You know what, I am--I--let me----
Mr. Conaway. Would you mind getting back to us on that?
Ms. Trujillo. I will----
Mr. Conaway. Because that is a----
Ms. Trujillo.--get back to you on that.
Mr. Conaway.--different issue. If you----
Ms. Trujillo. I don't want----
Mr. Conaway. You have emergency circumstances going on
where we do things to try to help, but if it is a systemic
issue that lasted over a period where it shouldn't have, then
that would be a different circumstance. You will get back to
me, so I appreciate it.
Ms. Trujillo. I will get back to you. Thank you. I
appreciate your questions.
[The information referred to is located on p. 43.]
Mr. Conaway. This is a big deal to us on the Agriculture
Committee.
Ms. Trujillo. I understand.
Mr. Conaway. The ratio between food aid, cash, and local
purchases is of keen interest to the Committee, as you have
seen today, so thank you all for being here. I appreciate it.
The Chairman. Mr. Newhouse?
Mr. Newhouse. Thank you, Mr. Chairman. I appreciate
everybody being here this morning. As Chairman Conaway just
said, this is an issue of very keen interest. I understand it
is in many situations around the world you make even the best
of a bad situation, perhaps is one way to characterize it, so I
appreciate the difficulty in delivering food assistance in the
most efficient method possible, but effort needs to be made to
make that as good as we can.
I apologize if this question has been asked already, but
much of the aid we are sending overseas is ending up in Syria,
and understandably so, so I would like to ask Mr. Melito, as
well as Ms. Trujillo, to talk a little bit about places like
Syria, where we have inability to send personnel to actually
make sure that the delivery is happening, what kind of
oversight is in place to make sure that people in need are
actually getting the assistance, versus perhaps some of the
groups that we are actually in a continuing struggle with, such
as ISIS, or the Syrian military? How can we assure the American
people that aid is getting into the peoples' hands that we want
it to, and not those that are trying to do us harm?
Mr. Melito. It is a very difficult challenge. For Syria,
the program is basically divided into efforts to help the
Syrians within Syria, and then efforts to help the refugees who
have left Syria. For the cash job, we were looking at the
services provided to the Syrian refugees in Jordan. There it is
a relatively safe environment, and you have contact with the
beneficiaries. You can implement some of the monitoring that
you would hope to implement.
We have a study that we just began for the House Foreign
Affairs Committee which is going to try to understand the
larger Syria program, which includes efforts to work within
Syria. We are really at the very beginning of that job, so I
can't really talk about what we are going to find. But I do
know from previous work we did looking at Somalia, when you are
in an environment of conflict, and an environment where the
U.S. Government can't operate--so in Somalia and in Syria there
are places that we cannot send U.S. citizens, you end up
relying on third parties. And then you have to come into a
process where you can trust these third parties. And it is a
difficult process, so----
Ms. Trujillo. And if I could share, as Tom mentioned, our
work too is relatively new. We have more work planned for this
next year, but we did conduct an audit of the Food for Peace
activities that are being implemented for Syria. And the during
the extent of our travels we too could not travel into Syria,
but what we did is we looked at each of the implementing
partner's controls. We looked to see how they were monitoring,
and how they were validating to ensure that--and we were
looking at flour that was being sent to bakeries, what they
were doing to ensure that the flour actually got to the bakery.
And so they were implementing various different types of
mechanisms, to have third party monitoring, volunteers in Syria
to call back to the implementers to confirm delivery of the
flour. But the biggest challenge is the fact that there is
nobody from USAID who can go in and do that direct kind of
monitoring.
Mr. Newhouse. So what is your----
Ms. Trujillo. And that----
Mr. Newhouse. What is your level of comfort that the aid is
actually getting where we want it to go?
Ms. Trujillo. Well, it is testing the controls that the
implementers have in place. Working--trying to get access to
these third--getting access to these third party monitors. The
World Food Programme, their OIG, actually, was able to send
people into Syria and do a much more thorough test of the
controls of World Food Peace--World Food Programme's
implementers.
Mr. Newhouse. Okay.
Ms. Trujillo. And they identified very much similar issues
that we have identified----
Mr. Newhouse. Okay.
Ms. Trujillo.--on the in-kind.
Mr. Newhouse. Before my time is up, I just wanted to ask
you, Ms. Trujillo, you mentioned a shipping company that you
found was overcharging, and had been for many years. Are you
still using that shipping company?
Ms. Trujillo. I don't know. I can't answer that question. I
am----
Mr. Newhouse. I would be interested if you could find an
answer.
Ms. Trujillo. Okay, I will.
[The information referred to is located on p. 43.]
Mr. Newhouse. Thank you. Thank you, Mr. Chairman. I yield
back.
The Chairman. I recognize the Ranking Member of the full
Committee, Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA

Mr. Peterson. Thank you, Mr. Chairman. So I don't know if
you could answer the first part of this question, which is if
you are going to go to cash, how do you determine where to do
that? Is it based on whether our commodities are undermining a
legitimate agriculture market that might be in that country? I
don't know exactly how that is done, but the more relevant
question is in areas that need assistance, and need cash, are
probably the most corrupt areas that there are. And how are you
going to ever deal with that? You have indications of not being
able to get this through the problems in those countries, and
that is where it is most needed. Is there ever going to be a
solution in those countries that you can rely on?
Mr. Melito. So one of the recommendations of GAO was before
you implement a cash or voucher program is to do what we call a
comprehensive risk assessment.
Mr. Peterson. What?
Mr. Melito. A comprehensive risk assessment, where you are
really trying to objectively assess whether you can operate,
whether the financial system--the vendors that are there
provide a reasonable level of assurance and trust. And if the
answer is no, then you probably shouldn't do it, but you need
to make an assessment in advance.
Mr. Peterson. And that is done in every case?
Mr. Melito. Well, we weren't observing it, so that was one
of our recommendations----
Mr. Peterson. That hasn't been done, necessarily?
Mr. Melito. Since our March report, USAID has made it clear
that that will now be a new requirement, but that is moving
forward.
Mr. Peterson. So it is not going to be a requirement?
Mr. Melito. It will be a----
Mr. Peterson. It will be?
Mr. Melito. They agreed to our recommendation, and they
say----
Mr. Peterson. I don't know how many of these countries have
a viable ag system. They have so many problems in terms of lack
of marketplace, and infrastructure, and too small of farms, and
all kinds of other problems. Is that taken into consideration
when you decide what kind of aid is going into these countries?
Because I have heard complaints that our commodities going in
undermine the existing--or undermine anything that is getting
developed there. And in the long term we would want those
countries to be able to feed themselves. And I have not been to
Africa much, but when I have been there, it is apparent to me
that they have the land and the water, that they could feed
themselves, if they could just straighten out all the other
problems.
Mr. Melito. So there really are three modalities. It is
U.S. commodities, which is still a very substantial part of the
program, there is local and regional procurement, so it is
buying commodities locally, or in a neighboring country, and
then finally it is using cash or vouchers. So the local and
regional procurement idea would be if a country has a severe
drought in one part of it, but it is actually fine in the other
part, you are helping them with logistics, basically, of moving
the food from the part of the country that is fine down to the
part that needs it. And that would be considered, hopefully,
also supporting the market as well in that country.
So USAID has asked for these three modalities, and they all
make sense in certain circumstances. The question is whether or
not you have done a legitimate market assessment and really
analyzed the underlying circumstance, and then choose the
appropriate modality for the circumstance.
Mr. Peterson. Anybody else have any comments?
Ms. Trujillo. I mentioned in my statement that, under the
Food for Peace we have been looking at USAID's role in
providing assistance to these farmers and teaching them new
ways on agriculture. And in many cases we have spoken to these
recipients who have seen positive results. They need to be seen
on a much broader scale, so that when these countries do have
conflict, they are resilient enough to get through it. And this
is a large scale program that is a priority.
Mr. Peterson. I was in Haiti earlier this year, and I was
at one of these research facilities, where they had a USAID guy
that was trying to develop varieties to grow there. I don't
know how come, but, he couldn't get help to determine how to
find the seed in the varieties that he was trying to grow in
these test plants. And I had to hook him up with some people
that I knew in the U.S.
Why can't the bureaucracy get that kind of information to
people out there that--I mean, he was doing the right thing,
but it seemed like he couldn't get any help from anybody to get
what he needed?
Ms. Trujillo. Yes. I----
Mr. Peterson. You----
Mr. Melito. I just wanted to add that there does seem to be
a strong interest in trying to address the underlying chronic
food insecurity. Feed the Future, that is really its goal. Feed
the Future is trying to leverage the efforts of multiple U.S.
agencies to address what you are saying. But it is still a
relatively new program, 5 or 6 years old, and I am sure there
are still things they could improve on.
Mr. Peterson. Well, 5, 6 years seems like a lot of time to
me, but----
Mr. Melito. Yes.
Mr. Peterson. I yield back.
The Chairman. Mrs. Hartzler?
Mrs. Hartzler. Thank you, Mr. Chairman. Thank you, every
one. I understand that while the implementation of cash-based
assistance programs may be subject to some level of third party
monitoring, there is virtually no monitoring by U.S. Government
officials. Do I have that correct?
Mr. Melito. We reported that in many of these countries
there is only one on-the-ground U.S. Government official, and
that person has responsibilities that go beyond the cash
program. They are responsible for other USAID programs. And
also, due to security concerns, they might not be able to
travel to where the operations are going on, so yes, they then
rely on third party monitoring.
Mrs. Hartzler. What are some of the third party entities
that are monitoring these----
Mr. Melito. These would be locally based organizations that
they contract with. So it comes down to the vetting process
that USAID is going through, in terms of whether or not the
organization has the capability to do it, as well as the
financial assurance aspects they are looking for.
Mrs. Hartzler. What type of monitoring report do they give
back? So is it they get on the phone and say, yes, everything
is going great here, or what are they required to provide back,
as far as evidence of their monitoring?
Mr. Melito. Well, we have looked at this on several
different reports in the past, commodity ones as well as cash.
It varies. In some cases it can be actually a pretty detailed
checklist that they want them to fill out. In other cases it
might just be that they want to report that the commodities
were distributed.
Part of what we would like to see is a more uniform process
for monitoring. You want to make sure the program is working
right, and you want to make sure that food is not being
diverted. And you want to make sure your monitoring is giving
you useful information on both of those goals.
Mrs. Hartzler. And the question was specifically on cash-
based. So that is even more tricky, where you are not actually
distributing rice, or----
Mr. Melito. Well, cash gives you some opportunities that
the commodity program doesn't, because you are now dealing
with, in many cases--let us not say physical cash. Let us talk
about the vouchers, or the electronic debit cards. It gives you
a new intermediary, which is often a financial institution. So
you may actually get data that you hadn't gotten before. If it
is a fairly mature financial institution, it could be actually
a fairly robust set of records. But, again, you need to know
that that--the organization exists, and you trust them.
So both modalities, cash and commodities, have challenges
and opportunities. I keep stressing that, but that is the case.
Mrs. Hartzler. Okay. This question is for Ms. Trujillo. It
appears that most of USAID OIG's work has focused on auditing
the implementation of programs made possible through in-kind
assistance. Given USAID's continued push for greater
flexibility, in addition to that recently provided by the farm
bill, why has the OIG not focused more of its attention on the
implementation of cash-based programs?
Ms. Trujillo. Thank you for that question. Over the last 5
years, as Tom has mentioned, and you have read, in-kind is
still the bulk of the food assistance that USAID is responsible
for. The use of the cash modalities with Title II funding it is
a relatively new concept. As the level of funding continues to
grow, then we look at our work based on where is the highest
risk?
And so as the level of cash modalities grows, the risk
grows, and we will be then redirecting our resources to focus
on that area of the management of the cash, and the controls of
the cash.
Mrs. Hartzler. Okay. Very good. I yield back. Thanks.
The Chairman. I want to thank all the witnesses for your
testimony today and your input. This has been very helpful, in
terms of information gathering. That will be quite useful as we
move forward, particularly as we begin preparations for the
next farm bill. It seems crazy to think that it is already
around the corner, but in essence it is, and time flies, as we
all know. And certainly up here, the days are long, but the
years are short, and I have learned that very quickly in my 6
months here as a Member.
I want to state for the record that, under the rules of the
Committee, the record of today's hearing will remain open for
10 calendar days to receive additional material and
supplementary written responses from the witnesses to any
questions posed by a Member. This Subcommittee on Livestock and
Foreign Agriculture hearing is now adjourned.
[Whereupon, at 10:55 a.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Supplementary Material Submitted by Catherine M. Trujillo, Acting
Deputy Inspector General, U.S. Agency for International Development
Insert
Mr. King. Thank you, Mr. Chairman. I appreciate this hearing,
and I appreciate the witnesses. It raises my curiosity, Ms.
Trujillo, when you talked about some of the aid being siphoned
off in Africa, and I would ask if you could flesh that out a
little bit more on which countries, and how that actually
happened?
Ms. Trujillo. This was the situation in East Africa, where it
was commodities--it was wheat that was siphoned off, taken to a
milling factory, made into flour, and then sold
internationally.
Mr. King. And what country?
Ms. Trujillo. You know what, I don't have--forgive me.
Mr. King. Just----
Ms. Trujillo. Can I get back to you----
Mr. King. That is fine. If you could get back to us after the
hearing, that would be fine.
Ms. Trujillo. Okay.
* * * * *
Mr. Conaway. Well, thank you, Mr. Chairman. Thank you all for
being here. In how many countries do we operate food programs,
including any of the three modalities?
Mr. Melito. I am going to probably have to get back to you.
There were 28 countries for cash, but the number is in excess
of 40, when you bring all the modalities. But I will get back
to you with that.
* * * * *
Mr. Conaway. So, was this particular sentence in your
testimony related to an emergency circumstance like that, or
was it a long running inability to coordinate with each other?
Ms. Trujillo. You know what, I am--I--let me----
Mr. Conaway. Would you mind getting back to us on that?
Ms. Trujillo. I will----
Mr. Conaway. Because that is a----
Ms. Trujillo.--get back to you on that.
Mr. Conaway.--different issue. If you----
Ms. Trujillo. I don't want----
Mr. Conaway. You have emergency circumstances going on where
we do things to try to help, but if it is a systemic issue that
lasted over a period where it shouldn't have, then that would
be a different circumstance. You will get back to me, so I
appreciate it.
Ms. Trujillo. I will get back to you. Thank you. I appreciate
your questions.
* * * * *
Mr. Newhouse. Before my time is up, I just wanted to ask you,
Ms. Trujillo, you mentioned a shipping company that you found
was overcharging, and had been for many years. Are you still
using that shipping company?
Ms. Trujillo. I don't know. I can't answer that question. I
am----
Mr. Newhouse. I would be interested if you could find an
answer.
Ms. Trujillo. Okay, I will.

August 14, 2015

Hon. David Rouzer,
Chairman,
Subcommittee on Livestock and Foreign Agriculture,
House Committee on Agriculture,
Washington, D.C.;

Hon. Jim Costa
Ranking Minority Member,
Subcommittee on Livestock and Foreign Agriculture,
House Committee on Agriculture,
Washington, D.C.

Dear Chairman Rouzer/Ranking Member Costa,
---------------------------------------------------------------------------
Editor's note: there were two identical letters submitted by
Catherine M. Trujillo, Acting Deputy Inspector General, U.S. Agency for
International Development. They have been combined.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Catherine M. Trujillo,
Acting Deputy Inspector General.
______

Submitted Questions
Response from Thomas Melito, Director, International Affairs and Trade,
U.S. Government Accountability Office
Question Submitted by Hon. K. Michael Conaway, a Representative in
Congress from Texas
Question. In which countries do we operate food aid programs?
Please indicate the modalities used in each country.
Answer. In Fiscal Year 2014, the U.S. government operated food
assistance programs in more than 50 countries.\1\ The chart below
details the modality or modalities provided in each country, and was
developed by GAO using Fiscal Year 2014 data provided by the U.S.
Agency for International Development (USAID), including information on
in-kind food aid programs provided through Title II Emergency and
Development Assistance, Food for Progress, the Bill Emerson
Humanitarian Trust, and the McGovern-Dole International Food for
Education and Childhood Nutrition program; and cash-based food
assistance funded through the Emergency Food Security Program under the
International Disaster Assistance account.\2\
---------------------------------------------------------------------------
\1\ In 2014, three awards-the East Africa regional award, Syria
regional award, and Central American Drought award-were regional in
nature, covering multiple jurisdictions. Individual country-level
modality data for regional awards were not provided to GAO, so these
programs are represented on a regional basis in the figure on the
following page.
\2\ Fiscal year 2014 in-kind food aid program data are preliminary.

Figure 1: Countries with U.S. Food Assistance Programs, by Modality, Fiscal Year 2014
----------------------------------------------------------------------------------------------------------------
Local and/or
Country or regional program name Cash transfers Vouchers In-kind regional
commodity procurement
----------------------------------------------------------------------------------------------------------------
Afghanistan
----------------------------------------------------------------------------------------------------------------
Algeria
----------------------------------------------------------------------------------------------------------------
Bangladesh
----------------------------------------------------------------------------------------------------------------
Benin
----------------------------------------------------------------------------------------------------------------
Bosnia and Herzegovina
----------------------------------------------------------------------------------------------------------------
Burkina Faso
----------------------------------------------------------------------------------------------------------------
Burma
----------------------------------------------------------------------------------------------------------------
Burundi
----------------------------------------------------------------------------------------------------------------
Cameroon
----------------------------------------------------------------------------------------------------------------
Central African Republic
----------------------------------------------------------------------------------------------------------------
Central American Drought Regional
----------------------------------------------------------------------------------------------------------------
Chad
----------------------------------------------------------------------------------------------------------------
Colombia
----------------------------------------------------------------------------------------------------------------
Congo (Brazzaville)
----------------------------------------------------------------------------------------------------------------
Congo (Kinshasa)
----------------------------------------------------------------------------------------------------------------
Cote d'Ivoire
----------------------------------------------------------------------------------------------------------------
Djibouti
----------------------------------------------------------------------------------------------------------------
East Africa Regional
----------------------------------------------------------------------------------------------------------------
Ecuador
----------------------------------------------------------------------------------------------------------------
El Salvador
----------------------------------------------------------------------------------------------------------------
Ethiopia
----------------------------------------------------------------------------------------------------------------
Guatemala
----------------------------------------------------------------------------------------------------------------
Guinea
----------------------------------------------------------------------------------------------------------------
Haiti
----------------------------------------------------------------------------------------------------------------
India
----------------------------------------------------------------------------------------------------------------
Iraq
----------------------------------------------------------------------------------------------------------------
Kenya
----------------------------------------------------------------------------------------------------------------
Laos
----------------------------------------------------------------------------------------------------------------
Liberia
----------------------------------------------------------------------------------------------------------------
Madagascar
----------------------------------------------------------------------------------------------------------------
Malawi
----------------------------------------------------------------------------------------------------------------
Mali
----------------------------------------------------------------------------------------------------------------
Mauritania
----------------------------------------------------------------------------------------------------------------
Mozambique
----------------------------------------------------------------------------------------------------------------
Nepal
----------------------------------------------------------------------------------------------------------------
Nicaragua
----------------------------------------------------------------------------------------------------------------
Niger
----------------------------------------------------------------------------------------------------------------
Pakistan
----------------------------------------------------------------------------------------------------------------
Philippines
----------------------------------------------------------------------------------------------------------------
Rwanda
----------------------------------------------------------------------------------------------------------------
Senegal
----------------------------------------------------------------------------------------------------------------
Sierra Leone
----------------------------------------------------------------------------------------------------------------
Somalia
----------------------------------------------------------------------------------------------------------------
South Sudan
----------------------------------------------------------------------------------------------------------------
Sudan
----------------------------------------------------------------------------------------------------------------
Syria
----------------------------------------------------------------------------------------------------------------
Syria Regional
----------------------------------------------------------------------------------------------------------------
Tanzania
----------------------------------------------------------------------------------------------------------------
Uganda
----------------------------------------------------------------------------------------------------------------
West Bank/Gaza
----------------------------------------------------------------------------------------------------------------
Yemen
----------------------------------------------------------------------------------------------------------------
Zimbabwe
----------------------------------------------------------------------------------------------------------------
Source: U.S. Agency for International Development and U.S. Department of Agriculture data.

Questions Submitted by Hon. David Rouzer, a Representative in Congress
from North Carolina
Question 1. To what extent does USAID have oversight over the steps
of the process prior to aid arriving in countries that are in need of
food assistance? To what extent does USAID have oversight of the
process after aid has arrived in the country?
Answer. USAID has oversight of commodity-based food assistance
programs prior to and after the aid arrives in countries. Additionally,
USAID has oversight over the cash-based assistance programs.
GAO-11-491, International Food Assistance: Better Nutrition and
Quality Control Can Further Improve U.S. Food Aid, discusses the
oversight process for commodity-based assistance. As described in GAO-
11-491 (http://www.gao.gov/products/GAO-11-491), before the food aid
arrives in countries, USAID has oversight over some of the domestic
planning, procurement, and decision making for its food aid contracts.

For planning, USAID reviews the World Food Programme (WFP)
or nongovernmental organizations' (NGO) food orders within a
Web Based Supply Chain Management system (WBSCM) to ensure that
the quantity and type of commodity requested are suitable for
the program and country in need. If approved, the request is
forwarded to the procurement office, USDA's Farm Service
Agency, and USDA's Kansas City Commodity Office (KCCO).

For procurement, USAID issues a solicitation and reviews
offers made by ocean freight services within WBSCM to deliver
commodities to overseas destinations. Meanwhile, KCCO reviews
all offers made by commodity vendors. Responsive ocean carrier
and commodity vendor offers are evaluated by a linear program
to determine the combination of commodity and ocean carrier
offers that together provide for the lowest landed cost.

For decision making, USAID, in coordination with KCCO,
reviews the lowest landed cost evaluation, considers program
needs and budgets, and gives authorization to proceed, or not
to proceed, with the procurement. USAID's Transportation
Division also provides WFP or NGOs with a procurement plan to
inform them of the ocean carrier that resulted in the lowest
landed cost and recommends the fair and reasonable rate for
ocean carriers.

After the food arrives in countries, USAID has some oversight over
the discharge of the food at the foreign port if the food's destination
was a preposition warehouse. In this case, USAID's warehouse contractor
manages the reconstitution and rebagging of damaged commodities and
inspects warehouses and food stocks at least once a week so that prompt
action can be taken if problems occur, such as physical damage,
staining caused by water, or evidence of theft.
GAO-15-328, International Cash-Based Food Assistance: USAID Has
Developed Processes for Initial Project Approval but Should Strengthen
Financial Oversight, describes the oversight process for cash-based
emergency food assistance. We found that USAID developed processes for
awarding cash-based food assistance grants that are consistent with
USAID's policies and procedures. USAID outlines its process for
reviewing and deciding to fund proposals for cash-based food assistance
projects in the Annual Program Statement (APS) for International
Emergency Food Assistance. The competitive proposal review process
outlined in the APS includes documented steps intended to ensure that
the proposal is aligned with U.S. foreign assistance objectives and is
technically sound.
With regard to USAID's field oversight of its cash-based food
assistance, according to USAID officials, Washington-based country
backstop officers (CBO) perform desk reviews of implementing partners'
financial reports and quarterly and final program reports and share
this information with Food for Peace (FFP) officers in the field; in
addition, both the Washington-based CBOs and FFP officers in-country
conduct field visits. However, we found that the ability of USAID's
staff to consistently perform financial oversight in the field may be
constrained by limited staff resources, security-related travel
restrictions and requirements, and a lack of specific guidance on
conducting oversight of cash transfer and food voucher programs.
GAO is currently undertaking a separate review of monitoring
activities for cash-based food assistance projects under the Emergency
Food Security Program. We plan to report out in 2016.

Question 2. There are costs associated with delivery of food aid,
regardless of whether it is in-kind or cash-based. For cash, there are
the often-overlooked costs such as security for the cash delivery
system, costs of approving vendors (if needed), and perhaps the most
overlooked of all, the costs of the built-in profits of suppliers and
store owners when food assistance recipients use cash to make retail
food purchases. What mechanisms does USAID have in place to determine
whether to deliver in-kind or cash-based assistance? Do those
mechanisms take into account the final delivered cost of food aid per
calorie, or some other measure of efficiency? Further, are you aware of
any official USAID guidance or rules that provide a framework for the
appropriate selection of food aid modalities and periodic evaluation
and/or modification of those modalities?
Answer. USAID's APS provides guidance to implementing partners on
how to choose modalities of food assistance. As we reported in GAO-15-
328 (http://www.gao.gov/products/GAO-15-328), USAID's policy is that
Emergency Food Security Program resources may be used when one or more
of the following conditions apply:

Local and regional procurement, cash-based food assistance,
or both are deemed more appropriate than in-kind food aid
because of market conditions.

Title II in-kind food aid cannot arrive in a sufficiently
timely manner through the regular ordering process or through
the use of pre-positioned stocks.

Significantly more beneficiaries can be served through the
programming of local and regional procurement or cash-based
food assistance.

Applicants must justify their chosen delivery mechanism based on
one or more of the criteria: appropriateness, timeliness, or cost-
effectiveness. For example, applicants can justify using cash-based
assistance if providing cash or voucher is more cost effective than
providing in-kind food aid.
However, we are not aware of any specific USAID guidance or rules
that provide a framework on how the cost comparison should be done.
Researchers at the International Food Policy Research Institute have
compared the cost of in-kind and cash-based assistance using an
activity-based approach in four case study countries that had programs
designed for such comparisons.

Question 3. In its March 2015 report, GAO found that increases in
the global and regional market prices of commodities may erode the
benefits recipients receive. How can USAID and NGOs improve their
responses to these periods of inflation?
Answer. In GAO-15-328 (http://www.gao.gov/products/GAO-15-328), we
recommended that the USAID Administrator develop formal guidance to
implementing partners for modifying cash-based food assistance projects
in response to changes in market conditions. USAID concurred with this
recommendation and in June 2015 reported entering into an agreement
with the Cash Learning Partnership--an organization that is working to
improve the use of cash and vouchers--to help develop guidance to
implementing partners on adapting programs to changing market
conditions. USAID plans to complete this guidance by April 2016. We
have yet to verify this information to determine whether it addresses
the issues we identified. In addition, we noted in GAO-15-328 (http://
www.gao.gov/products/GAO-15-328) that the World Food Programme's (WFP)
Cash and Vouchers Manual suggests that WFP's country offices consider
setting cutoff limits for maximum acceptable price inflation and have a
contingency exit plan to respond to the situation when acceptable price
inflation limits are exceeded.

Question 4. If the local price of food spikes when cash-based
assistance is provided, is that an indicator that cash-based assistance
may no longer be appropriate in that situation? How do partners in the
field monitor and adapt to those situations? Also, did you find any
instances where cash or vouchers were being used, but then the program
was switched to commodities? If so, why?
Answer. In GAO-15-328 (http://www.gao.gov/products/GAO-15-328), we
found that USAID requires implementing partners of cash-based food
assistance projects to collect and report market prices of key
commodities during the implementation of the assistance. For example,
we found that an implementing partner in Niger monitored both the local
market price for commodities and the cost of distributing these
commodities. The implementing partner then considered switching from
distributing cash to in-kind food distributions when the price of
commodities that beneficiaries purchased in local markets neared the
cost of in-kind distributions. The implementing partner's Niger
officials reported that they switched from cash to in-kind
distributions in certain geographic areas but not in other areas where
the prices of staple commodities did not reach the cost of in-kind
distributions. In another example, the implementing partner in Kenya
established the transfer rate based on the value of the standard food
basket; it reviewed prices every month and would change transfer
amounts only in response to price fluctuations, in either direction, of
more than ten percent. In Taita Taveta, the site we visited in Kenya,
the implementing partner informed us that the transfer value had not
been adjusted since June 2013 because retail food prices had not
changed more than ten percent. However, according to both USAID and WFP
officials, while WFP has more flexibility because it receives
contributions from multiple donors for a specific project, NGOs that
primarily rely on USAID for funding generally do not have the same
flexibility to switch modalities due to restrictions, including legal
and programmatic constraints of the funding streams.

Question 5. Based on your review of these programs and the controls
that are in place, what is the appropriate response to a situation
where the cash price of commodities is increasing? How does that impact
the effectiveness of food aid? Are the appropriate procedures in place
to adapt to those changes? What about if the cash price of food is
decreasing?
Answer. In cases when the cash price of commodities increases,
USAID runs the risk of beneficiaries' benefits being eroded by the
price increases. In cases when the cash price of food decreases, USAID
runs the risk of inefficient use of scarce project funding. In GAO-15-
328 (http://www.gao.gov/products/GAO-15-328), we found that, according
to USAID officials, USAID does not have a standard for identifying
significant price changes, since the definition of significance is
specific to each country and region. In addition, we did not find
guidance addressing modifications in response to changing market
conditions in the APS for International Emergency Food Assistance. This
lack of guidance has resulted in inconsistent responses to changing
market conditions among different cash and voucher projects funded by
USAID. For example, an implementing partner in Kenya predetermined, as
part of its project design, when adjustments to cash transfer amounts
would be triggered by food price changes, while an implementing partner
whose project we reviewed in Niger relied on an ad hoc response. The
implementing partner in Kenya established the cash and voucher transfer
rate based on the value of the standard food basket; it reviewed prices
every month but would change cash and voucher transfer amounts only in
response to price fluctuations, in either direction, of more than ten
percent.

Question 6. We have concerns about the risk management procedures
in place at USAID and with the PVOs. How can those be addressed, and
between USAID and the PVOs, which would need to make changes first?
Answer. In GAO-15-328 (http://www.gao.gov/products/GAO-15-328), we
examined the risk management procedures for USAID's cash-based food
assistance program. We did not examine risk management at USAID as a
whole. As the agency administering cash-based food assistance, USAID
first needs to develop risk management policy and comprehensive
guidance. Based on the guidance developed by USAID, the PVOs should
develop and implement their own guidance that delineates procedures,
including developing risk registers with mitigation plans, for managing
potential risks to their projects.

Question 7. In a March 2014 GAO report on food aid pre-positioning,
GAO expressed concerns about USAID's assessments of timeliness of pre-
positioning efforts. Have there been any improvements in the ability to
track effectiveness of pre-positioning efforts since your 2014 report?
Answer. GAO-14-277, International Food Aid: pre-positioning Speeds
Delivery of Emergency Aid, but Additional Monitoring of Time Frames and
Costs Is Needed, discusses USAID's efforts to reduce the time frame for
delivering international emergency food aid by pre-positioning food
domestically--in warehouses in the United States--and overseas. As of
June 28, 2015, USAID officials noted that they were exploring options
for developing a pre-positioning tracking system but are still in the
early stages. USAID completed an independent evaluation on the
efficiency and effectiveness of the Title II Food for Peace pre-
positioning program in 2014 but has yet to address our recommendations
in GAO-14-277 (http://www.gao.gov/products/GAO-14-277) to
systematically monitor and assess data on delivery time frames and
assess costs associated with commodity procurement, shipping, and
storage for pre-positioned food aid shipments.

Question 8. One of the reasons why monitoring and evaluation
funding was reduced in the 2014 Farm Bill was because of continued lack
of coordination between USDA and USAID on WBSCM, a system designed to
improve monitoring and evaluation of the procurement process. What
specific improvements, if any, have been made on this front?
Answer. GAO-14-22, International Food Aid: Better Agency
Collaboration Needed to Assess and Improve Emergency Food Aid
Procurement System, reviews USAID's and USDA's use of the Web Based
Supply Chain Management system (WBSCM) to help manage international
emergency food aid procurements. In GAO-14-22 (http://www.gao.gov/
products/GAO-14-22), GAO made three recommendations to USAID and USDA
to improve the efficiency and accountability of the emergency food aid
procurement process. To date, while the agencies have taken some
actions, they have not fully addressed the recommendations.

Agencies have not resolved the issue of verifying the
accuracy of preposition warehouse data. USDA still cannot
independently verify the accuracy of the information that USAID
provides because USAID does not use WBSCM to manage inventory
at the preposition warehouses, which could make it easier for
USDA to independently verify the data and compile its quarterly
financial reports. On July 15, 2015, USDA officials organized a
WebEx session to demonstrate for USAID officials how WBSCM
could track and manage inventory in USAID's preposition
warehouses. During the meeting, USAID officials offered
suggestions for improving the system to accommodate USAID's
needs. In response to USAID's comments, USDA officials noted
that it would be technically feasible to make the changes to
WBSCM if USAID were to commit to using the system.

Agencies have not resolved concerns of users of the
international food aid procurement functions. In August 2014,
USDA completed an assessment of WBSCM's functionality for the
international procurement process. USAID was not able to
participate and test the functionality of the system at that
time. According to USDA officials, the agency can make
technical changes to meet USAID's needs if USAID agrees to use
the system.

Agencies have not created a memorandum of understanding to
resolve how agencies will use WBSCM. USDA has created a team to
work with USAID to develop a memorandum of understanding that
clearly outlines the roles and responsibilities of WBSCM users.
In May 2015, USAID identified a point of contact for USDA to
work with in developing the provisions of a memorandum. As of
July 29, 2015, a USDA official informed GAO that a draft
Memorandum of Understanding had been developed, but the
agencies had not finalized it.
Response from Catherine M. Trujillo, Acting Deputy Inspector General,
U.S. Agency for International Development
October 2, 2015

Hon. David Rouzer,
Chairman,
Subcommittee on Livestock and Foreign Agriculture,
House Committee on Agriculture,
Washington, D.C.;

Hon. Jim Costa
Ranking Minority Member,
Subcommittee on Livestock and Foreign Agriculture,
House Committee on Agriculture,
Washington, D.C.

On behalf of the U.S. Agency for International Development (USAID)
Office of Inspector General (OIG) I am pleased to have had the
opportunity to appear before the Subcommittee on Livestock and Foreign
Agriculture of the House Committee on Agriculture on July 9, 2015, to
discuss oversight and monitoring of U.S. food assistance programs under
Title II of the Food for Peace Act.
I am writing in reply to the Subcommittee's official questions for
the record, transmitted to my office following the Subcommittee's
hearing. My responses follow an earlier letter to you and Ranking
Member Costa, dated August 14, 2015, in which I provided additional
information in response to questions posed during the hearing by
Chairman Conaway, Congressman King, and Congressman Newhouse. My
answers to each of the Subcommittee's official questions for the record
appear below in the order in which we received them. Portions of my
responses reiterate and expand upon information relayed to you in my
August 14, 2015, letter.
Question Submitted by Hon. K. Michael Conaway, a Representative in
Congress from Texas
Question. The testimony by Ms. Trujillo mentioned ``weaknesses in
Food for Peace program management and coordination over the years,''
and also provided several specific examples. Was the inability to
coordinate efforts taking place under emergency circumstances, or are
these part of a long-running inability to coordinate all programs,
including non-emergency food aid?
Answer. References to instances of management and coordination
weaknesses in my July 9, 2015, testimony draw upon OIG audit and
investigative work concerning both humanitarian (i.e., emergency) and
development (i.e., non-emergency) programs. As I wrote in my August 14,
2015, letter and in response to a related question from Chairman
Conaway during the Subcommittee's July 9, 2015, hearing, one example of
these weaknesses derives from OIG audit work performed in Haiti. During
the audit, OIG identified duplication of efforts in connection with a
Title II program operating under non-emergency circumstances, directed
by USAID's Office of Food for Peace in Washington, D.C., and managed
and monitored out of USAID's mission in Haiti. The audited activities
consisted of a multiyear effort to improve food security and increase
the resilience of vulnerable rural households. Under the program, USAID
made three awards, which began in February 2008 and ran through
September 2012 in two cases and through February 2013 in a third.
In the audit report, OIG cited evidence of duplication with USAID-
funded programs in two Title II regions in Haiti. One case involved the
overlap of Title II agricultural activities with another program with a
similar focus, USAID's Watershed Initiative for National Natural
Environmental Resources (WINNER). OIG attributed the problem to a lack
of communication and also cited the USAID mission's decision to
continue WINNER in the same area, despite an earlier assertion that it
would end the program and therefore limit the extent of duplication. At
the time, USAID officials committed to follow up on the problem and,
later, indicated that the mission established a tracking tool to record
and monitor activities in the area with the purpose of avoiding
``wasteful duplication'' of efforts.
The second case of overlap that related to USAID's Title II efforts
in Haiti concerned the work of a grant recipient under the
International Food Relief Partnership (IFRP). OIG's audit report noted
that, while IFRP relies on its applicants to identify potential
overlap, applicants are not always aware of activities under other
USAID programs and the wording of this requirement in IFRP's grant
application is not clear. Auditors also noted that USAID's mission in
Haiti had not initially identified the potential overlap as a problem.
While the Title II implementer had advised USAID's mission in Haiti of
duplication and the mission confirmed the overlap, communication to
USAID staff in Washington on the subject reportedly went unanswered.
The IFRP grantee subsequently stopped distributing food pending further
discussions between USAID and its Title II implementer.
In my July 9, 2015, testimony I cited additional examples of
weaknesses in non-emergency programs in Madagascar (where
inconsistencies in how partners delivered assistance resulted in
beneficiaries lacking access to rations during times of greatest need)
and Uganda (where OIG noted the delivery of food aid to recipients that
were outside the target population). OIG's audit work in Somalia, which
concerned humanitarian as well as development activities, demonstrated
that USAID implementers were inconsistently vetting vendors. Last,
another example that I mentioned in my July 9, 2015, testimony
concerned the provision of assistance to a group registered with the
U.S. Department of Treasury's Office of Foreign Asset Control. In this
instance, the affected program concerned humanitarian (i.e., emergency)
assistance.
Questions Submitted by Hon. David Rouzer, a Representative in Congress
from North Carolina
Question 1. There are costs associated with delivery of food aid,
regardless of whether it is in-kind or cash-based. For cash, there are
the often-overlooked costs such as security for the cash delivery
system, costs of approving vendors (if needed), and perhaps the most
overlooked of all, the costs of the built-in profits of suppliers and
store owners when food assistance recipients use cash to make retail
food purchases. What mechanisms does USAID have in place to determine
whether to deliver in-kind or cash-based assistance? Do those
mechanisms take into account the final delivered cost of food aid per
calorie, or some other measure of efficiency? Further, are you aware of
any official USAID guidance or rules that provide a framework for the
appropriate selection of food aid modalities and periodic evaluation
and/or modification of those modalities?
Answer. Information in recent GAO reporting, USAID testimony, and
agency materials provide guidance for such programs and suggest that
the mechanisms it uses to deliver food assistance depend, in part, on
the type of setting in which the agency and its partners are working.
For instance, the Government Accountability Office's (GAO's) recent
work on international cash-based assistance \1\ notes that USAID has
deemed cash-based interventions to be critical in emergencies such as
the humanitarian crises in Syria, due to the ongoing civil war, and in
the Philippines in the aftermath of Typhoon Haiyan. Indeed, in June 24,
2015, testimony before the full House Committee on Agriculture, USAID's
Acting Assistant Administrator for the Bureau for Democracy, Conflict,
and Humanitarian Assistance appeared to confirm this position, noting
that cash-based assistance is part of the Emergency Food Security
Program, which the Acting Assistant Administrator described as an
``indispensable'' component of the agency's response to major crises,
such as Syria, where commodity-based food aid is not appropriate in
USAID's estimation.\2\
---------------------------------------------------------------------------
\1\ International Cash-Based Assistance: USAID Has Developed
Procedures for Initial Project Approval but Should Strengthen Financial
Oversight; GAO-15-321 (March 2015); http://www.gao.gov/assets/670/
669255.pdf.
\2\ Testimony of Thomas H. Staal, Acting Assistant Administrator,
USAID before the House Committee on Agriculture (June 24, 2015), p. 5.
http://agriculture.house.gov/sites/republicans.agriculture.house.gov/
files/pdf/Staal%20Testimony.pdf.
---------------------------------------------------------------------------
Also, in March 2015, USAID issued its Annual Program Statement
(APS) for International Emergency Food Assistance covering both Title
II and Emergency Food Security Programs. A guide for award applicants
seeking to provide food assistance, the APS identifies project
objectives, describes the application process, and provides criteria
for evaluating and selecting proposals. The APS covers cash-based
assistance and includes a number of areas for consideration in project
design, including distribution method, market analysis and impact, and
monitoring and evaluation, among other areas. The APS further calls for
regular reports on implementers' activities, to include performance
information such as an actual average cost per beneficiary reported for
each applicable modality under an award.

Question 2. Based on the OIG's work, what could be done to improve
pre-positioning of commodities? Would things like cost-benefit analysis
be useful to improving program efficiencies?
Answer. In our performance audit of USAID's internal controls over
pre-positioned food assistance for the Horn of Africa, issued in
January 2013, auditors identified several areas for improvement. These
findings remain relevant when considering the pre-positioning of food
assistance commodities in general. First, the audit report's third
recommendation, that USAID implement a system of internal controls to
monitor and track losses more closely at warehouses, including
procedures to recover losses from warehouse contractors, remains open
and unimplemented. While USAID described procedures that it argued
satisfied the recommendation, OIG observed that the Agency's management
comment to the recommendation did not reflect the intent of the
recommendation and that the processes the Agency described did not
demonstrate how losses occurring within warehouses are identified and
recovered. Implementation of OIG recommendations is a critical step in
protecting taxpayer resources and, in the case of this particular
audit, can help improve USAID's pre-positioning efforts worldwide.
Beyond taking action on open and unimplemented recommendations, the
use of cost-benefit analyses can offer important insights into how
USAID manages the program and may help lead to improvements. In fact,
in the audit report mentioned above, OIG's first recommendation was for
USAID to conduct an analysis of cost and timeliness between overseas
and domestic pre-positioning. This recommendation was closed in March
2015, when the Agency completed final action on the recommendation. In
closing the recommendation, USAID reported that an independent
evaluation of the Food for Peace pre-positioning program had been
completed. The evaluation included a comparison between domestic and
overseas pre-positioning of commodities. USAID noted that, based on the
evaluation findings, as well as several other factors, Food for Peace
had moved all of its pre-positioning for the West Africa region back to
the domestic warehouse in Jacinto, Texas. Furthermore, USAID has
advised that it is consolidating its warehouses in East Africa to save
costs, and will also ship commodities as necessary from Jacinto, Texas.

Question 3. What do you view as the biggest problem areas or areas
for improvement in USAID's portfolio of programs?
Answer. With respect to the delivery of food assistance under Title
II, Food for Peace, as discussed in my July 9, 2015, testimony before
the Subcommittee, OIG has identified a number of areas in which USAID
needs to improve the design and/or implementation of its programs.
First, our work has identified weaknesses in USAID's internal controls
in several respects. Such weaknesses have included problems documenting
the flow of goods and ensuring that USAID or its implementers maintain
adequate records for tracking commodities. OIG findings concerning
internal controls also described the substandard storage of commodities
and noted the importance of guarding commodities against theft
throughout the supply chain.
As I mentioned in my July 9, 2015, testimony, and reiterated above
in my response to Chairman Conaway's question, OIG audit work has also
pointed to concerns regarding the management and coordination of food
assistance programs. OIG has identified several instances in which
programs yielded substandard results, such as food aid not being
delivered when beneficiaries were most in need, or when food aid was
provided to groups other than those intended. In other cases, USAID did
not conduct critical analysis or ensure coordination among partners to
promote best practices and eliminate duplication.
Finally, OIG has consistently highlighted problems with data
quality in food assistance activities, a finding common in audit
reports on many different types of Agency programs, as well as with
monitoring efforts for food assistance programs. Both activities are
important for program oversight and help stakeholders make decisions
about the effectiveness and allocation of food assistance program
resources.

Question 4. In your testimony, you indicated that USAID OIG has
conducted at least 12 reviews of USAID food programs resulting in
almost 100 recommendations for ways in which USAID's programs could be
improved. Which of these recommendations are the highest priority for
USAID to implement to improve program integrity and effectiveness?
Furthermore, how well have these recommended changes been implemented?
Answer. Out of 98 recommendations across 12 reports that I
referenced in my July 9, 2015, testimony, all but one have received
``final action,'' meaning that USAID has taken steps to address the
recommendation and that the recommendation has been closed. The
remaining recommendation, Recommendation 3 in our Audit of USAID's
Internal Controls Over Pre-positioned Food Assistance for the Horn of
Africa,\3\ is slated to receive final action in March 2016 and OIG
considers to be a high priority in terms of improving program integrity
and effectiveness. OIG specifically recommended that USAID's Office of
Acquisition and Assistance's (OAA's) Transportation Division implement
a system of internal controls to monitor and track losses more closely
at warehouses, including procedures for recovering losses from
warehouse contractors. Action on this recommendation would help improve
internal controls and strengthen accountability in USAID's program for
pre-positioning food in overseas warehouses and keeping those
commodities safe.
---------------------------------------------------------------------------
\3\ Audit of USAID 's Internal Controls Over Pre-positioned Food
Assistance for the Horn of Africa; Report No. 4-962-13-004-P (January
7, 2013); https://oig.usaid.gov/sites/default/files/audit-reports/4-
962-13-004-p.pdf.

Question 5. In many instances, USAID relies on implementing
partners to deliver food aid to those who need it. Are USAID's
implementing partners following the best practices recommended by
USAID?
Answer. As I indicated in my July 9, 2015, testimony, OIG's work
has periodically documented instances in which USAID implementers do
not appear to be following best practices, or even consistent
practices, even in cases where they might have benefited from doing so.
For instance, OIG noted that USAID implementers used inconsistent
practices when vetting vendors and sub-recipients in Somalia, reducing
assurance that best practices were being used to fully examine whether
these groups had ties to armed or terrorist groups, or other prohibited
parties. In a separate report, OIG noted that implementers in Haiti had
failed to pick up on demonstrated best practices in implementing their
assistance programs, with the result that beneficiaries with the
greatest nutritional needs received incomplete coverage for a time.
Last, OIG has identified opportunities where USAID itself could have
improved its management practice supporting its programs. As noted in
an OIG audit report mentioned above, for example, failing to conduct a
cost-benefit analysis that compares pre-positioning food in
international ports against shipping it from the United States means
that USAID did not have important information needed to assess whether
it was using resources effectively and efficiently.

Question 6. It is disturbing to hear about the thefts of food aid
described in your testimony. You mentioned specific instances of food
aid commodities being stolen in Pakistan and East Africa. I understand
that cash-based assistance is also being used in some of these places.
What confidence do you have that USAID has adequate controls in place
to prevent theft of cash-based assistance in these locations and
anywhere else cash-based assistance is used?
Answer. GAO's work earlier this year \4\ addressed this topic most
directly, identifying several areas in which USAID's controls over
cash-based assistance, provided under the Emergency Food Security
Program and funded through the International Disaster Assistance
account, could be improved. Specifically, GAO found that USAID had not
required its partners to conduct comprehensive risk assessments to plan
financial oversight activities, which it described as two key
components of an internal control framework. According to the report,
USAID had also not provided adequate guidance to its partners to
execute these components of an internal control framework. Because
USAID operates in many areas that present a high degree of risk to
fraud, diversion, and other abuse, addressing these program weaknesses
is a key step in increasing the level of confidence in USAID's controls
over cash-based assistance in any location.
---------------------------------------------------------------------------
\4\ International Cash-Based Assistance: USAID Has Developed
Procedures for Initial Project Approval but Should Strengthen Financial
Oversight; GAO-15-321 (March 2015); http://www.gao.gov/assets/670/
669255.pdf.
---------------------------------------------------------------------------
Question Submitted by Hon. Steve King, a Representative in Congress
from Iowa
Question. The testimony by Ms. Trujillo indicated instances of
commodities being stolen in East Africa. Please provide more specifics
around this instance, including which country this occurred in, and the
volume and value of food that was stolen.
Answer. The commodity theft in East Africa that I mentioned in my
testimony on July 9, 2015, pertained to a USAID food assistance program
in Ethiopia. The large-scale diversion of commodities, specifically
grain, resulted in the grain being relayed to and processed by a local
flour-milling factory, which sent the flour to parts of Ethiopia, as
well as to Somalia and Kenya. OIG estimated that its investigators
observed more than $270,000 in USAID-provided commodities at the
factory on days they visited. Based on evidence obtained by USAID and
USAID OIG, losses due the fraud and non-delivery of food assistance in
this case amounted to $1.15 million, which would cover approximately
1,150 metric tons of grain using USAID's valuation. However, given
reports that the factory had been in operation for 3 or 4 years and
that it operated almost exclusively on USAID commodities, losses may
have been as high as $3.5 million.
Question Submitted by Hon. Dan Newhouse, a Representative in Congress
from Washington
Question. A shipping company that improperly overcharged USAID for
the shipment of U.S. food aid over a period of 4 years was mentioned in
the hearing testimony. Is that company still being used by USAID, and
are they still eligible to be used by USAID?
Answer. The shipping company--Maersek Line, Ltd.--that I mentioned
in my testimony on July 9, 2015, had recently reached an $836,630 civil
settlement with the U.S. Department of Justice after an OIG
investigation concluded that the company had billed USAID at a higher
rate than it should have for more than 4 years. To OIG's knowledge, the
company is still eligible for USAID awards and USAID continues to use
this shipping company.
I trust the information above is responsive to each Member's
question(s) and thank you for your interest in the effectiveness of
U.S. food assistance programs abroad. I also appreciate your support of
USAID OIG's oversight work, and the work of our partners in the Federal
oversight community. Should you require further information regarding
our work, please contact me; or, your staff may contact Justin Brown,
Chief of Staff, at [Redacted].
Sincerely,

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Catherine M. Trujillo,
Acting Deputy Inspector General.

[all]