Foreign Assistance: Recent Improvements Made, but USAID Should Do
More to Help Ensure Aid Is Not Provided for Terrorist Activities
in West Bank and Gaza (29-SEP-06, GAO-06-1062R).
The United States has worked for decades to achieve a resolution
to the Israeli-Palestinian conflict through initiatives such as
the 1993 Oslo Accords and the more recent 2003 Roadmap for Peace.
During fiscal years 1993 through 2005, the United States provided
more than $2 billion in assistance to Palestinians in the West
Bank and Gaza, including nearly $275 million in fiscal year 2005,
to help achieve this goal. In particular, the 2005 assistance was
provided to support the president of the Palestinian Authority,
elected in January 2005, and to facilitate the Israeli
disengagement from parts of the West Bank and Gaza, among other
things. This assistance, primarily administered by the U.S.
Agency for International Development (USAID), has been directed
mainly toward five development sectors: economic growth, water
and infrastructure, democracy and governance, health, and higher
education. In recent years, the United States has taken several
steps to help ensure that U.S. resources, including its aid to
the West Bank and Gaza, do not support terrorist activities. On
September 23, 2001, President Bush issued an executive order
prohibiting the support of any organization or individuals that
have been designated as terrorists. Since 2001, to implement the
executive order and other antiterrorism provisions in various
subsequent appropriations acts, USAID, in consultation with the
Department of State, Congress, and others, developed a number of
provisions to help ensure that its assistance is not delivered to
or through terrorists. In addition, the USAID mission for the
West Bank and Gaza (the mission) developed policies and
procedures to implement antiterrorism provisions for the awards
it administers. The provisions that were in effect for assistance
delivered through contracts, grants, and cooperative agreements
active in 2005 included (1) the vetting of certain non-U.S. prime
awardees and subawardees for terrorist connections; (2)
certifications by all prime awardees and subawardees of grants
and cooperative agreements that they have not assisted and do not
assist terrorists; and (3) a clause in all awards and related
subawards prohibiting the support of terrorists (antiterrorism
clause) and clauses in all prime awards prohibiting (a) the use
of U.S. funds to recognize or honor terrorists (naming clause)
and (b) the provision of cash to the Palestinian Authority (cash
clause). Responding to a 2005 mandate to the Comptroller General
of the United States, we examined fiscal year 2005 assistance to
the West Bank and Gaza to, among other things, ensure that the
required antiterrorism measures were implemented. In addition, we
reviewed the financial audit reports of West Bank and Gaza
contractors and grantees (and significant subcontractors and
subgrantees) prepared by the USAID Office of the Regional
Inspector General-Cairo (RIG) in response to a 2003 mandate and
subsequent mandates. Among other things, the audits examined the
awardees' compliance with antiterrorism provisions. To address
these objectives, we reviewed the relevant laws and executive
orders and USAID's directives, internal memorandums, operating
procedures, and guidance for assistance-related antiterrorism
measures. We focused on USAID's implementation of procedures
related to vetting and antiterrorism certification and clauses.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-1062R
ACCNO: A61684
TITLE: Foreign Assistance: Recent Improvements Made, but USAID
Should Do More to Help Ensure Aid Is Not Provided for Terrorist
Activities in West Bank and Gaza
DATE: 09/29/2006
SUBJECT: Antiterrorism
Awards
Cooperative agreements
Data collection
Data integrity
Executive orders
Federal aid to foreign countries
Foreign aid programs
Foreign economic assistance
Grants-in-aid
Internal controls
International relations
Noncompliance
Program evaluation
Terrorism
Terrorists
Policies and procedures
Gaza
Israel
Palestine
West Bank
******************************************************************
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GAO-06-1062R
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
September 29, 2006
The Honorable Mitch McConnell
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Subcommittee on State, Foreign Operations,
and Related Programs
Committee on Appropriations
United States Senate
The Honorable Jim Kolbe
Chairman
The Honorable Nita M. Lowey
Ranking Minority Member
Subcommittee on Foreign Operations,
Export Financing, and Related Programs
Committee on Appropriations
House of Representatives
Subject: Foreign Assistance: Recent Improvements Made, but USAID Should Do
More to Help Ensure Aid Is Not Provided for Terrorist Activities in West
Bank and Gaza
The United States has worked for decades to achieve a resolution to the
Israeli-Palestinian conflict through initiatives such as the 1993 Oslo
Accords and the more recent 2003 Roadmap for Peace. During fiscal years
1993 through 2005, the United States provided more than $2 billion in
assistance to Palestinians in the West Bank and Gaza, including nearly
$275 million in fiscal year 2005, to help achieve this goal. In
particular, the 2005 assistance was provided to support the president of
the Palestinian Authority, elected in January 2005, and to facilitate the
Israeli disengagement from parts of the West Bank and Gaza, among other
things. This assistance, primarily administered by the U.S. Agency for
International Development (USAID), has been directed mainly toward five
development sectors: economic growth, water and infrastructure, democracy
and governance, health, and higher education.
In recent years, the United States has taken several steps to help ensure
that U.S. resources, including its aid to the West Bank and Gaza, do not
support terrorist activities. On September 23, 2001, President Bush issued
an executive order prohibiting the support of any organizations or
individuals that have been designated as terrorists.1 Since 2001, to
implement the executive order and other antiterrorism provisions in
various subsequent appropriations acts,2 USAID, in consultation with the
Department of State, Congress, and others, developed a number of
provisions to help ensure that its assistance is not delivered to or
through terrorists. In addition, the USAID mission for the West Bank and
Gaza (the mission) developed policies and procedures to implement
antiterrorism provisions for the awards it administers. The provisions
that were in effect for assistance delivered through contracts, grants,
and cooperative agreements active in 20053 included (1) the vetting of
certain non-U.S. prime awardees and subawardees for terrorist connections;
(2) certifications by all prime awardees and subawardees of grants and
cooperative agreements that they have not assisted and do not assist
terrorists; and (3) a clause in all awards and related subawards
prohibiting the support of terrorists (antiterrorism clause) and clauses
in all prime awards prohibiting (a) the use of U.S. funds to recognize or
honor terrorists (naming clause) and (b) the provision of cash to the
Palestinian Authority (cash clause).
Responding to a 2005 mandate to the Comptroller General of the United
States, we examined fiscal year 2005 assistance to the West Bank and Gaza
to, among other things, ensure that the required antiterrorism measures
were implemented.4 In addition, we reviewed the financial audit reports of
West Bank and Gaza contractors and grantees (and significant
subcontractors and subgrantees) prepared by the USAID Office of the
Regional Inspector General-Cairo (RIG) in response to a 2003 mandate and
subsequent
1Executive Order 13224, 66 Fed. Reg. 49070 (Sept. 23, 2001) pursuant to
the authorities of the International Emergency Economic Powers Act (50
U.S.C. 1701 et seq.); the National Emergencies Act (50 U.S.C. 1601 et
seq.); sec. 5 of the United Nations Participation Act of 1945, as amended
(22 U.S.C. 287c) (UNPA); and sec. 301 of title 3, United States Code.
2Consolidated Appropriations Resolution of 2003, Pub. L. No. 108-7, S:
568(b), 117 Stat. 11, 207 (2003); Consolidated Appropriations Act of 2004,
Pub. L. No. 108-199, S: 566(b), 118 Stat. 3, 195 (2004); and Consolidated
Appropriations Act of 2005, Pub. L. No. 108-447, S:559(b), 118 Stat. 2809,
3019 (2004).
3For the purposes of this report, we define active awards as awards for
which obligations or expenditures were made in fiscal year 2005. According
to West Bank and Gaza mission documents, vetting involves checking the
names of individuals and organizations that implement USAID projects
against databases and other information sources to determine if they are
involved with terrorism. Throughout this report, we use the term "prime
awardees" to refer to organizations that receive USAID contracts, grants,
or cooperative agreements to implement U.S. assistance projects.
"Subawardees" refer to organizations that receive subcontracts or
subgrants from prime awardees for work on U.S. assistance projects. In
addition to using contracts, grants, and cooperative agreements, USAID
provides assistance through consulting agreements, letters of
understanding, memorandums of understanding, and purchase orders. See
enclosure I for definitions of these terms.
4Emergency Supplemental Appropriations for Defense, the Global War on
Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13, S: 2103, 119 Stat.
231, 266 (2005). Other issues related to assistance delivered by USAID's
West Bank and Gaza mission-including information on obligations,
expenditures, and the impact of the assistance-will be covered in a future
report.
mandates.5 Among other things, the audits examined the awardees'
compliance with antiterrorism provisions.
To address these objectives, we reviewed the relevant laws and executive
orders and USAID's directives, internal memorandums, operating procedures,
and guidance for assistance-related antiterrorism measures. We focused on
USAID's implementation of procedures related to vetting and antiterrorism
certification and clauses. We developed a database of USAID West Bank and
Gaza awards to capture and summarize their characteristics and
requirements. We traveled to Tel Aviv, Israel, and met with cognizant West
Bank and Gaza mission officials, including the USAID Mission Director and
his senior staff. We examined an unclassified USAID West Bank and Gaza
mission database designed to help the mission manage its vetting, and we
analyzed 99 USAID contracts, grants, and cooperative agreements and over
900 related subawards that were associated with awards active during 2005
to determine whether they had the required certifications and clauses. We
also met with the mission's staff responsible for overseeing the various
awards and related subawards. In addition, we traveled to Cairo, Egypt,
and met with USAID officials at the RIG and reviewed and analyzed the
contents of 62 audit reports that it had completed, which addressed West
Bank and Gaza assistance for awards active from 2002 through 2005 (with
corresponding reports issued from 2004 through 2006). We conducted our
review from October 2005 through August 2006 in accordance with generally
accepted government auditing standards. (For further details of our scope
and methodology, see enc. I.)
Results in Brief
The mission's implementation of its antiterrorism requirements for
vetting, certification, and clauses for awards active in fiscal year 2005
had certain limitations. However, the mission has taken, or is taking
steps, to resolve many of these problems.
o Until June 2006, the mission did not routinely collect detailed
identifying information on individuals, such as date and place of
birth, or verify that information. Approximately 94 percent of the
vetting results memorandums indicated that additional information,
such as an individual's date and place of birth and an Israeli
identification number, was needed for a more complete assessment.
Further, we found that the mission had not established procedures,
such as requesting some form of identification, to verify the
accuracy of key individuals' names provided by awardees.6 The
mission drafted a policy in June 2006 to collect additional
identifying information and in its comments stated that it would
take action to improve its ability to verify the information
provided by awardees. In addition, in March 2006, although the
mission added certain conditions that would trigger revetting of
awardees, the mission eliminated a requirement to periodically
revet certain awardees, thus reducing the chances of identifying
terrorist connections with more recent intelligence information.
However, in its comments on a draft of this report it agreed with
our recommendation and has reinstituted the periodic revetting
requirement.
o Data reliability issues, security weaknesses, and other
problems with the mission's unclassified database, which is
designed to record and track vetting results, limited its utility
for management and oversight purposes. We found important data
fields that were left blank or filled with inappropriate
information. Also, a foreign service national developed the
database counter to State internal regulations, and few safeguards
were in place to control access to hard copies of the information
stored in the database. In April 2006, a USAID team of information
specialists began addressing these problems, and cognizant USAID
officials told us they expect to have a more useful and secure
unclassified vetting management database in operation later this
year.
o Although the mission generally ensured that prime awardees
signed the required certifications, many prime awards did not
contain the required clauses and, until recently, the mission did
not systematically verify that recipients of subawards signed the
required certifications or that subawards contained the mandatory
clauses. In some cases, the required clauses did not appear or had
been added months or years after award initiation, including after
our inquiry. Consequently, some prime awardees and subawardees may
not have been aware of their contractual obligations to comply
with certain antiterrorism provisions. In response to our
observations, the mission revised its policy in March 2006 to
require that before award approval, all prime awardees submit
subawardee certifications as well as evidence that the required
clauses were included in the subawards. The mission has not,
however, clearly articulated how its antiterrorism provisions are
applied to assistance agreements such as memorandums of
understanding and consulting agreements, and as a result, it has
applied these provisions inconsistently.
5Since 2003, U.S. appropriations acts (S: 568(b), 117 Stat. at 207; S:
566(b), 118 Stat. at 195; S: 559(b) 118 Stat. at 3019) have required that
federal or nonfederal audits of all USAID contractors, grantees, and
significant subcontractors and subgrantees in the West Bank and Gaza be
conducted at least annually to ensure, among other things, compliance with
U.S. antiterrorism provisions related to assistance for West Bank and
Gaza. The USAID RIG determined the significance of subawardees based on
the total value of the awards provided to the subawardee.
To address the 2003 mandate and subsequent related mandates for financial
audits of West Bank and Gaza assistance, USAID's RIG contracted with audit
firms in the region.7 The RIG added the requirement for reviewing
antiterrorism provisions to its audits in supplementary guidance in 2003.
Since then, the RIG has prepared 62 reports, issued from 2004 through
2006, based on the contract auditors' reviews. However, although the
mandate was addressed, the RIG's financial audits did not help the mission
ensure that awardees complied with the antiterrorism requirements before
awards and subawards were entered into. In particular, the nature of the
RIG's financial audits means the audits were not initiated until after the
award had been implemented or, in some cases, completed. This means that
any omissions in conducting the required vetting or ensuring that the
antiterrorism certifications and clauses were in the awards, as required,
were not found by the auditors until after the award had been entered
into. In addition,
6The mission defines key individuals as those who have financial and
management decision-making authority over the operations of the
organization. USAID specifies that such individuals include the program
manager or chief of party for the USAID-financed program; the principal
officer and deputy principal officer of the organization (for example,
executive director, deputy director, president, or vice-president); the
principal officers of the organization's governing body (for example,
chairman, vice-chairman, treasurer, and secretary of the board of
directors or board of trustees); and any other person with significant
responsibilities for administration of USAID-financed activities or
resources.
7Up to $1 million was provided to the USAID Office of the Inspector
General in each fiscal year to conduct the audits.
o The guidance to the RIG's contract auditors did not always
reflect the mission's antiterrorism policies and procedures. For
example, the 2003, 2004, and 2005 guidance directed auditors to
check for a less detailed version of the antiterrorism clause than
the mission was using.
o The October 2003 guidance provided that all subawards should be
examined rather than a sample. However, this requirement was not
in the guidance to auditors for 2004 and 2005. Unless the auditors
were otherwise aware of the 2003 guidance, they may not have
reviewed all subawards.
We are making several recommendations to the Director of U.S. Foreign
Assistance and USAID Administrator to strengthen the mission's efforts to
help ensure that U.S. assistance to the West Bank and Gaza does not
support terrorist activities, including addressing limitations with the
mission's vetting management database and developing antiterrorism
policies and procedures for all its financial agreements. We also
recommend that the Director of U.S. Foreign Assistance and USAID
Administrator and the West Bank and Gaza mission, in cooperation with the
RIG, develop a system to review awards and applicable subawards to help
ensure that antiterrorism requirements are met before the financial
agreements are implemented. This system should also ensure that the
reviews (1) reflect the mission's policies and procedures at the time of
the award and (2) have a consistent methodology for examining subawards.
In commenting on a draft of this report, USAID and the USAID Inspector
General generally accepted four of our five recommendations. USAID noted
that our fieldwork and the draft report were a positive contribution to
improving and strengthening the West Bank and Gaza mission's antiterrorism
provisions. However, the mission disagreed on our recommendation on the
need to develop policies and procedures for applying antiterrorism
provisions to other assistance agreements, such as memorandums of
understanding and purchase orders. Although the mission added guidance
regarding in-kind assistance to its mission order, USAID commented that
further clarification for applying antiterrorism provisions to other
assistance agreements such as memorandums of understanding was not needed.
We believe that further clarification is needed in the mission order to
ensure that antiterrorism provisions are correctly and consistently
applied to all agreements. In addition, USAID noted that the mission has
taken steps that address the intent of our recommendation to ensure
compliance with antiterrorism provisions before awards and subawards are
implemented.
Background
The Palestinian territories, comprising the West Bank and Gaza, cover
2,402 square miles and have a combined population of 3.8 million people.8
Gaza is administered by the Palestinian Authority, while the West Bank
includes areas administered by the authority and Israel. (See fig. 1.)
8The West Bank has a land area of 2,263 square miles and a population of
about 2.4 million. Gaza has a land area of 139 square miles and a
population of about 1.4 million.
Figure 1: Map of West Bank and Gaza and Surrounding Countries
In 1993, the Oslo Peace Accords9 were signed and USAID established its
West Bank and Gaza mission in Tel Aviv. In September 2000, the second
intifada (uprising) began and the Oslo peace process unraveled. Peace
efforts were renewed in June 2002 when President George W. Bush outlined
the principles that served as the foundation for a performance-based
strategy called the Roadmap for Peace, which calls for an independent
Palestinian state coexisting peacefully with the State of Israel. The
United Nations (UN), the United States, the European Union, and
Russia-known as the Quartet on the Middle East10-as well as Israel and the
Palestinian Authority endorsed the strategy in April 2003. In January
2005, Mahmoud Abbas, a supporter of the peace strategy, was elected
president of the Palestinian Authority. A year later, in January 2006, the
Palestinian people elected a Hamas majority to the Palestinian Legislative
Council. Hamas is designated as a terrorist organization by Israel, the
United States, and the European Union. On January 30, 2006, the Quartet on
the Middle East stated that its members would only provide support and
assistance to the Hamas-led government if the government would agree to
nonviolence, recognize the state of Israel, and respect previous
Israeli-Palestinian peace agreements. As of September 2006, Hamas had not
accepted these conditions.
9The accords called for the withdrawal of Israeli forces from Gaza and
parts of the West Bank and affirmed the Palestinian right to
self-government within those areas through the creation of the Palestinian
Interim Self-government Authority. Palestinian rule would last for a
5-year interim period during which a permanent agreement would be
negotiated (beginning not later than the third year of the interim
period).
Since 1993, the United States has provided more than $2 billion to the
West Bank and Gaza to support the Middle East peace process and encourage
progress in reforming the Palestinian Authority.11 The 2005 appropriation
of $274.4 million-the largest yearly amount of U.S. bilateral assistance
for the West Bank and Gaza since the second intifada-was provided to,
among other things, support the president of the Palestinian Authority,
elected in January 2005, and to facilitate the Israeli disengagement from
Gaza and four northern West Bank settlements. As of June 30, 2006, the
West Bank and Gaza mission reported that it had obligated $222.9 million
in Economic Support Fund assistance12 through various financial agreements
active during fiscal year 2005 and had expended $60.8 million. For fiscal
year 2006, USAID reported that it had obligated just $1.1 million and
expended only $139,000-reflecting the fact that U.S. assistance to the
West Bank and Gaza has been frozen pending a comprehensive review. In
April 2006, the Secretary of State announced a substantial reduction in
assistance and redirected $300 million to humanitarian, democracy
promotion, and civil society activities. In June 2006, concerned that
Hamas' influence was growing, the Congress directed that none of the funds
appropriated under the Economic Support Fund in 2006 or any prior
appropriation for foreign operations, export financing, and related
programs may be obligated for assistance to the West Bank and Gaza until
the Secretary of State reports to the Committees on Appropriations how the
funds will be spent and that appropriate measures are in place to ensure
that no funds will support terrorist activities. 13 On July 21, 2006, the
Secretary of State submitted the report to the committees. The report
included a revised strategy that provided details on an assistance package
totaling $468 million.14
10The quartet is involved in mediating the peace process between the State
of Israel and the Palestinian Authority.
11These funds include $121 million in direct budget support for the
Palestinian Authority and $1.3 billion to the UN Relief and Works Agency.
12The Economic Support Fund promotes the economic and political foreign
policy interests of the United States by providing assistance to allies
and countries in transition to democracy, supporting Middle East peace
negotiations, and financing economic stabilization programs. Recent
appropriations acts prohibit the provision of Economic Support Fund
assistance in the West Bank and Gaza to support or recognize individuals
or organizations involved in terrorism.
13See Emergency Supplemental Appropriations Act for Defense, the Global
War on Terror, and Hurricane Recovery, 2006 Pub. L. No. 109-234, S: 1304,
120 Stat. 418, 435 (2006). The act was signed into law on June 15, 2006.
Since establishing its mission in the West Bank and Gaza in September
1993, USAID has directed assistance to the Palestinians toward five main
development sectors: economic growth, water and infrastructure, democracy
and governance, health, and higher education. It has supported these
objectives through efforts such as, respectively, job creation programs,
construction of reservoirs and roads, election support projects, projects
to improve maternal and child health, and university scholarship programs.
As a result of Hamas' election victory in January 2006, the terrorist
organization's unwillingness to accept the conditions set by the Quartet,
and continued attacks on Israel by Hamas' military wing, USAID reduced and
redirected its overall assistance program and focused its assistance
primarily on democracy support, health, education, and private sector
development activities that would not provide political or economic gain
to, or require contact with, the Hamas-led Palestinian Authority.
U.S. policy to prevent assistance from supporting known terrorists in the
West Bank and Gaza is articulated in a 2001 executive order and several
appropriations laws:
o Executive Order 13224, issued in September 2001, blocks
property and prohibits transactions with persons who commit,
threaten to commit, or support terrorism.15
o The Consolidated Appropriations Acts of 2003, 2004, and 2005 16
require that before obligating assistance under the Economic
Support Fund for the West Bank and Gaza, the Secretary of State
must establish vetting procedures to ensure that U.S. assistance
is not provided to or through any individual, entity, or
institution associated with terrorist activity. The 2005 law also
prohibits the obligation of assistance under the Economic Support
Fund to recognize or honor individuals who commit, or have
committed, acts of terrorism.17 In addition, the laws require that
the USAID Administrator ensure that annual audits of all West Bank
and Gaza contractors and grantees and significant subcontractors
and subgrantees are conducted to, among other things, ensure
compliance with the antiterrorism provisions contained in the
acts.18
14The assistance includes $50 million for Israel's use in easing the
movement and access of Palestinian people and goods, while improving its
security.
15Earlier executive orders concerning antiterrorism and the Middle East
peace process include Executive Order 12947, 60 Fed. Reg. 5079 (Jan. 23,
1995), and Executive Order 13099, 63 Fed. Reg. 45167 (Aug. 20, 1998).
Orders issued subsequent to Executive Order 13224 that amend it include
Executive Order 13268, 67 Fed. Reg. 44751 (July 2, 2002), which, among
other actions, added two individuals to the list of designated terrorists
contained in Executive Order 13224, and Executive Order 13284, 68 Fed.
Reg. 4075 (Jan. 23, 2003), which stipulates that the Department of
Homeland Security be included in consultations about whether to designate
an individual or organization as a terrorist and what actions should be
taken to carry out Executive Order 13224.
To implement Executive Order 13224 and the antiterrorism provisions in the
various laws, USAID has issued several Acquisition and Assistance Policy
Directives since 2002 that require an antiterrorism certification in all
grants and cooperative agreements and an antiterrorism clause in all USAID
awards.
o All prime awardees and subawardees of grants and cooperative
agreements are required to certify that they do not provide
material support or resources to individuals or entities engaged
in terrorist activity or to those that support them.19 The
certification delineates steps that awardees are supposed to take
to help prevent assistance from being provided to terrorists, such
as (1) reviewing U.S. and UN terrorist lists to ensure that
awardees do not appear on them and (2) developing reasonable
monitoring procedures to safeguard against the diversion of
assistance to support terrorist activity. This certification also
provides for unilateral termination of the award by USAID if the
terms of the certification are violated.
o The antiterrorism clause applies to all prime awardees and
subwardees. It is intended to familiarize award recipients with
the names contained in Executive Order 13224 and apprise them of
their contractual responsibility to comply with executive orders
and laws that prohibit transactions with, and provision of
resources and support to, individuals and organizations associated
with terrorism.20 USAID also mandated the inclusion of an
antiterrorism clause in awards to the UN. It states that the UN
will make reasonable efforts to ensure that no USAID funds are
used to provide support to individuals and organizations
associated with terrorism.21
16S: 568(b), 117 Stat. at 207; S: 566(b), 118 Stat. at 195; S: 559(b) 118
Stat. at 3019. Similar language was included in the Foreign Operations,
Export Financing, and Related Programs Appropriations Act, 2006, Pub. L.
109-102, S: 559(b), 119 Stat. 2172, 2221 (2005). Section 1304 of the
Emergency Supplemental Appropriations Act for Defense, the Global War on
Terror, and Hurricane Recovery, 2006, requires the Secretary of State to
report to the Committees on Appropriations that appropriate procedures and
safeguards exist to ensure that U.S. assistance is not provided to or
through any individual, private or government entity, or educational
institution that the Secretary knows or has reason to believe advocates,
plans, sponsors, engages in, or has engaged in, terrorist activity.
17Consolidated Appropriations Act of 2005, Pub. L. No. 109-102, S: 559(c),
118 Stat. 2809, 3019 (2004).
18S: 568(c), 117 Stat. at 207; S: 566(c), 118 Stat. at 195; S: 559(d) 118
Stat. at 3019.
19This requirement can be found in USAID Acquisition and Assistance Policy
Directives 02-19 (December 2002), 04-07 (March 2004), 04-14 (September
2004) and action memorandums.
The West Bank and Gaza mission developed additional clauses to implement
other legislated antiterrorism provisions that applied to its awards
during 2005.22
o The "naming" clause, according to the mission's regional legal
advisor, is required in all prime awards initiated after December
2004. The clause was introduced in response to allegations that
USAID was providing funding to institutions that were honoring
terrorists. After these allegations, a provision was included in
the 2005 appropriations law prohibiting the use of assistance
appropriated under the Economic Support Fund to recognize or honor
individuals who commit, or have committed, acts of terrorism.23
o The "cash" clause, according to the mission's regional legal
advisor, is required in all prime awards and prohibits the
provision of direct cash assistance to the Palestinian Authority
unless a presidential certification is filed. It was first
introduced in the 1998 appropriations law and has been included in
annual appropriations law since then.24 The regional legal advisor
told us that, although the mission originally required the cash
clause as an anticorruption measure, the clause could now serve to
help prevent the use of U.S. funds to support terrorism.25
20The antiterrorism clause requirements are specified in Acquisition and
Assistance Policy Directive 02-04 (March 2002) and in action memorandums.
21The UN version of the antiterrorism clause is specified in Acquisition
and Assistance Policy Directive 03-04 (May 2003).
22On October 30, 2002, and July 3, 2003, the USAID West Bank and Gaza
mission Regional Legal Advisor issued two action memorandums that were
distributed to the mission summarizing the antiterrorism requirements in
place at the time.
23S: 559(c), 118 Stat. at 3019.
24Foreign Operations, Export Financing, and Related Programs
Appropriations Act of 1998, Pub. L. No. 105-118, S: 566, 111 Stat. 2386,
2428 (1997); Omnibus Consolidated and Emergency Supplemental
Appropriations Act of 1999, Pub. L. No. 105-277, S: 566, 112 Stat. 2681,
2681-194 (1998); Consolidated Appropriations Act of 2000, app. B, Pub. L.
No. 106-113, S: 563, 113 Stat. 1501, 1501A-105, (1999); Foreign
Operations, Export Financing, and Related Programs Appropriations Act of
2001, app. A, Pub. L. No. 106-429, S: 562, 114 Stat. 1900, 1900A-46
(2000); Foreign Operations, Export Financing, and Related Programs
Appropriations Act of 2002, Pub. L. No. 107-115, S: 555, 115 Stat. 2118,
2160 (2002); Consolidated Appropriations Resolution of 2003, Pub. L. No.
108-7, S: 552, 117 Stat. 11, 2000 (2003); Consolidated Appropriations Act
of 2004, Pub. L. No. 108-199, S: 552, 118 Stat. 3, 188 (2004);
Consolidated Appropriations Act of 2005, Pub. L. No. 108-447, S: 550, 118
Stat. 2809, 3014; and Foreign Operations, Export Financing, and Related
Programs Appropriations Act of 2006, Pub. L. No. 109-102, S: 550, 119
Stat. 2172, 2217 (2005).
25We analyzed the application of the cash clause in all USAID awards
active in 2005 because of Hamas' election victory and subsequent control
of the Palestinian Authority.
Figure 2 presents the mission's antiterrorism measures that applied to
USAID contracts, grants, and cooperative agreements during fiscal year
2005.
Figure 2: Antiterrorism Vetting, Certification, and Clause Requirements
Applicable in Fiscal Year 2005, by Financial Agreement
West Bank and Gaza Mission's Implementation of Antiterrorism Measures Had
Limitations, but the Mission Is Taking Certain Corrective Actions
The mission's implementation of its measures for antiterrorism vetting,
certification, and clauses in fiscal year 2005 had limitations that
reduced its ability to help ensure that U.S. assistance does not support
terrorist activities. However, the mission has taken steps, or is taking
steps, to correct many of these limitations.
Mission's Vetting Procedures Had Limitations, but It Has Taken Corrective
Actions
The mission developed procedures for vetting awardees, but limitations in
these procedures reduced the mission's ability to help ensure that U.S.
funds do not support terrorists. However, the mission has implemented
actions to strengthen its procedures. The mission did not collect certain
biographical information, leading to less-than- comprehensive vetting
results. In addition, the mission had not developed procedures to verify
the information provided by prime awardees or to ensure that prime
awardees verified information provided by subawardees. Further, until
March 2006, a higher dollar threshold for vetting some contractors and
subcontractors reduced the numbers vetted, and the mission eliminated a
requirement for periodic revetting of awardees in early 2006. As a result
of our review and consultations with congressional staff, the mission has
made changes to strengthen its procedures, including collecting more
complete biographical data, verifying the data provided by awardees,
lowering the vetting threshold for contracts, and reinstituting periodic
revetting. Finally, several limitations associated with the mission's
vetting management database have hampered the mission's oversight of the
vetting process, although the mission has begun taking steps to correct
these issues.
West Bank and Gaza Mission Developed Vetting Procedures
According to mission officials, the mission's vetting procedures were the
culmination of a process beginning in 2001 and based on consultations with
Congress. These procedures represent an interagency effort forged from
consultations with USAID's Asia and Near East Bureau, USAID's
antiterrorism task force, the Office of the General Counsel, the U.S.
Embassy in Tel Aviv, U.S. implementing partners, and Palestinian
nongovernmental organizations (NGOs). Since then, the vetting procedures
have been refined to account for concerns raised by these and other
parties. The mission's vetting procedures state that the process begins
when a non-U.S. prime awardee submits identifying information about itself
and its key individuals, or information about a subawardee and its key
individuals, to the mission. This information is entered in the mission's
unclassified vetting management database26 and is forwarded to U.S.
officials in the U.S. Embassy in Tel Aviv who are responsible for the
vetting. These officials consult available resources, such as
counterterrorism databases, to determine whether the prime awardee, the
subawardee, or any key individuals are linked to terrorism. Memorandums
containing the vetting results are sent to the mission, which records the
results in the vetting management database.
If the prime awardee, the subawardee, or any of their key individuals are
found to have links to terrorism, the mission has the opportunity to
collect and forward additional information. If the additional data fail to
alter the initial vetting assessment results showing links to terrorism,
the mission may submit an appeal to officials at the U.S. Embassy-Tel Aviv
and the U.S. Consulate General-Jerusalem. Once a final determination has
been made, the cognizant technical officer notifies the mission's
contracting officer27 and the awardee of the result and the mission's
vetting management database is updated. The proposed award or subaward is
denied if the final determination shows links to terrorist organizations
or activity.
26The mission database is intended to store information collected on
organizations and individuals that require vetting, track the dates when
vetting occurred, and record the vetting results.
27A cognizant technical officer performs functions that are designated by
the contracting or agreement officer or is specifically designated by
policy or regulation as part of contract or assistance administration. A
contracting officer represents the U.S. government through the exercise of
his or her delegated authority to enter into, administer, and terminate
contracts and make related determinations and findings.
Mission Did Not Gather Comprehensive Vetting Information or Have
Procedures to Verify Information Collected from Awardees
Until recently, the mission's vetting of individuals associated with
awardees was limited by the mission's decision not to collect certain
identifying information for key individuals associated with prime awardees
and subawardees. The mission changed this policy in June 2006. Similarly,
the vetting process was limited because the mission did not have
procedures to verify the information provided by prime and subawardees.
However, the mission has indicated it will take steps to correct this
problem.
USAID documents show that in 2001, the mission intended to collect
detailed identifying information about Palestinian prime awardees and
subawardees, including key individuals' names,28 places and dates of
birth, and identification numbers. However, according to USAID officials,
a number of NGOs expressed concern about providing identifying information
for key individuals because they feared that such efforts would be seen as
intelligence gathering for the United States, Israel, or both.
Consequently, the mission decided in 2002 to routinely collect only the
four-part name.
In 2002, embassy vetting officials informed USAID that (1) a person's name
alone is not sufficient proof of their identity, given how easily names
may be changed or aliases used; (2) alternative spellings of Arabic names
in English add another layer of uncertainty; and (3) additional data
elements such as date of birth would increase the reliability of the
vetting process. Since USAID provided only the four-part name, the vetting
officials required that all of their vetting results be qualified. Our
analysis showed that providing only the four-part name led to incomplete
vetting results most of the time. In a random probability sample of 104 of
520 vetting results memorandums received by the mission since October
2002, 94 percent of all memorandums characterized the vetting based on
only the four-part name as less than comprehensive.29 The memorandums
state that additional information, such as the individual's date and place
of birth and Israeli identification number, was needed for a more complete
assessment. In addition, we found that the mission had established no
procedures to verify the accuracy of key individuals' names provided by
awardees, such as requiring an Israeli identification card, passport,
driver's license, or some other identification document.
In February 2006, USAID officials told us that when vetting with an
individual's four-part name indicated terrorist associations, the mission
would collect and provide additional information in an attempt to verify
the initial vetting results. In June 2006, as a result of consultations
with congressional staff, the mission drafted an amendment to its policy
and now requires the collection of key individuals' dates and places of
birth and Israeli identification numbers.30 However, because the mission
has not yet developed procedures to verify this information, it cannot be
certain that the information in its database correctly identifies the key
individuals to be vetted. In commenting on this report, USAID stated that
the mission is following current policies and regulations, common
throughout the U.S. government, which place the burden on the contractors
and grantees to ensure the accuracy of information provided to the
government. However, the mission, prompted by our findings, is planning to
obtain an affirmative certification from awardees as to the accuracy of
key individuals' names and other data provided.
28The four-part name comprises the individual's given name, the father's
given name, the grandfather's given name, and the individual's surname.
29Our sample survey finding that vetting in 94 percent of the 520
memorandums was less than comprehensive has a 95-percent confidence
interval of 88 to 98 percent.
Other Procedural Limitations Have Hampered Vetting
Until March 2006, a higher dollar threshold limited the number of awards
that were vetted, resulting in the vetting of fewer individuals and
organizations. Also, in March 2006, the mission eliminated a requirement
to periodically revet awardees, which may preclude the revetting of some
awardees after an initial clearance. Based on our review and other
factors, USAID has taken action to strengthen its vetting procedures.
Vetting Dollar Threshold
In fiscal years 2001 through 2003, the mission required vetting for all
non-U.S. contractors and subcontractors, as well as their key individuals,
for awards valued at $25,000 or more.31 However, the mission's July 2003
action memorandum raised this threshold to $100,000. We found that as a
result of this increase, non-U.S. organizations and individuals associated
with 34 contracts totaling approximately $2.1 million were not vetted
during the period August 2003 through February 2006. According to the
mission's Regional Legal Advisor, mission officials raised the vetting
threshold in 2003 in part because they were concerned that vetting was
limiting the mission's ability to meet urgent humanitarian needs in the
West Bank and Gaza. In addition, the lower vetting threshold had not
identified any non-U.S. contractor associated with terrorism.
Nevertheless, responding to increased pressure to prevent U.S. assistance
from reaching terrorists, the mission lowered the vetting threshold back
to $25,000 in March 2006.
Periodic Revetting
The mission's current policy regarding revetting of individuals and
organizations does not provide for the possibility that terrorist
associations may develop over the duration of an award. Prior to March
2006, mission guidance required that awardees be automatically revetted
every 3 years. However, because most prime awards and subawards do not
last 3 years, the mission dropped the revetting requirement from its
guidance in March 2006. These March 2006 vetting procedures required that
individuals and organizations be vetted once-prior to award approval. The
vetting results were considered valid for the award's duration. The
procedures also introduced additional conditions that would cause awardees
to be revetted. These conditions included changes in key individuals, if
an extension of the award is proposed, or if information is provided to
USAID that indicates that an organization or its key individuals have been
or may currently be involved in terrorist activity.
30The amendment states that mission order 21 encouraged the submission of
additional data but did not require it. As of September 2006, the mission
was awaiting clearance on privacy act and paper reduction approvals
associated with the amendment of mission order 21.
31All recipients of grants and cooperative agreements have been subject to
vetting requirements, regardless of the dollar value of the award, since
vetting began in 2001.
This procedure does not take into account the fact that intelligence
regarding terrorist affiliations changes over time and that such
information may not be provided to USAID. For example, according to
mission officials, new intelligence information in 2005 showed possible
links to terrorists, including Hamas, for six organizations that
previously had been cleared. Five of these organizations had received U.S.
assistance through multiple subawards and had been vetted and cleared by
U.S. Embassy vetting officials several times. The new intelligence
information was received after three of the subawards had been
completed.32 One award was terminated based on the validation of the new
information and the remaining two organizations were cleared through
additional vetting.
Although the resources needed for vetting increase with the frequency of
vetting, intelligence officials stated that periodic revetting is needed
to help ensure that individuals and organizations are not involved in
terrorism. Periodic revetting would allow USAID to proactively seek new
information about awardees that had not met any of the conditions
contained in the mission's procedures that trigger revetting. In its
comments, USAID stated that, as a result of our review, it has reinstated
a periodic revetting requirement.
Limitations in the Mission's Vetting Management Database Have Hindered Its
Utility, but the Mission Is Taking Corrective Action
A number of limitations associated with the mission's vetting management
database-unreliable data, a lack of adherence to security policies,
insufficient technical documentation, and the mission's low prioritization
of the database-have constrained the mission's management and oversight of
the vetting process. Since our review, the mission has begun taking steps
to resolve many of these limitations.33
Unreliable Data
Our review of the database revealed several issues that call into question
the data's reliability.
32 One of these three organizations was found to have links to terrorist
organizations upon application for another award.
33The vetting management database and the information it contains are
considered unclassified.
o At least one of the names in the four-part name was missing
from the name fields in more than 2,595 of the database's nearly
8,800 records.
o Inappropriate data appeared in more than 1,000 records. In
these records, fields designed to display key individual titles
with decision-making and fiduciary responsibilities as defined by
USAID (such as president, executive director, or treasurer)
contained the names of Middle Eastern countries or titles such as
"office boy" and "administrative assistant."34
o Data fields could be overwritten, and the system lacked an
audit trail to record changes to critical data. Thus, important
historical data, such as the date of a vetting request, could be
removed inadvertently when records were updated.
Security Issues
In January 2006, the USAID RIG conducted a review of the mission's vetting
procedures and recommended that relevant application and security controls
be implemented. When we followed up on the RIG's work, we found several
remaining weaknesses in the security of the vetting management database.
o Vetting reports, containing the names of key individuals
identified as having links to terrorism and the organizations they
served, were stored in an unlocked filing cabinet. As a result,
the mission's foreign service nationals and other staff without a
need to know had unrestricted access to this information. 35
o USAID had not obtained required approvals for a Palestinian
foreign service national to design and develop the mission's
vetting management database.36
o Because the mission did not classify the database as a major
application (that is, an application that was critical to USAID's
operations), the mission did not consider the relevance of
application and security controls in maintaining its database,
including the requirements outlined in USAID Automated Directives
System Section 545.37
34The database contains 1670 records associated with organizations and
8,772 records associated with key individuals.
35According to the mission's October 2002 action memorandum, information
in the database should be available only to those with an official need
for access. Much of the information contained in the database is also
contained in these paper files.
36According to State Department guidance (12 Foreign Affairs Manual
633.1), under certain conditions, foreign nationals are not to develop,
modify, or perform maintenance on software used on State computer systems
without specific diplomatic security authorization. The information
management officers responsible for State's computer systems, both in the
United States and abroad, must obtain authorization before such work is
begun. USAID's information systems security personnel stated USAID works
to comply with FAM 633.1 and the mission should have consulted with
information security personnel prior to developing the database.
Insufficient Technical Documentation
Although the mission backs up the database daily to allow it to restore
the database in the event of a system failure, we found that the mission
had not developed accompanying technical documentation. This documentation
would help ensure that data were consistently defined and that the
database could be rebuilt in the event of a system failure.38 The minimum
amount of documentation required is a data dictionary or the equivalent
information associated with a database management system, including a
description of the data elements and their relationship.39
Low Priority
No office within the mission was formally designated as the database
owner, as required.40 As a result, the database was shifted among five
different offices within the mission over a 5-year period, which may have
contributed to staffs' lack of understanding of the database capabilities
and operation. For example, the individual responsible for operating the
system at the time of our review was unaware of a database instruction
manual that described how to enter information and retrieve reports on the
status of vetting submissions. In addition, the foreign service national
employee who had managed the unclassified vetting management database
since March 2005 lacked the security clearances needed to communicate
directly with vetting officials about vetting results-adding
inefficiencies to the vetting process.
Corrective Actions
Since our review of the West Bank and Gaza mission's vetting management
database, the mission has taken several steps to correct many of the
limitations we identified.
o In March 2006, the mission hired a U.S. direct-hire employee
with a security clearance to manage the vetting process.
o In April 2006, as a result of the Regional Inspector General's
earlier review and our observations, USAID headquarters sent
information technology specialists and the USAID counterterrorism
coordinator to review the database and related vetting procedures.
Based on that review, USAID plans to implement a more robust and
secure database by November 2006.41
o The mission has moved the vetting database to the Office of
Contracts Management, where the award and vetting processes can be
better integrated.
37According to USAID information systems security personnel, the criteria
in effect when the database was developed did not require the system to be
classified as a major application.
38USAID Automated Directive 502.5.6a states that USAID database
applications should comply with Code of Federal Regulations (CFR) Title
36,1234.20(b). According to the CFR, agencies must maintain adequate and
up-to-date technical documentation for each electronic information system
that produces, uses, or stores data files.
39In database management systems, a data dictionary is a file that defines
the basic organization of a database, including a list of all files in the
database, the number of records in each file, and the names and types of
each field.
40Automated Directive System, sec. 545.
Mission Did Not Ensure that All Antiterrorism Certifications and Clauses
Were Completed before Awards Were Approved
Although the mission generally ensured that prime awardees of grants and
cooperative agreements certified that they have not assisted and do not
now assist terrorists, it did not ensure that applicable contracts,
grants, and cooperative agreements included the antiterrorism, naming, and
cash clauses. In addition, the mission lacked a system for verifying,
before award approval, that subawardees had signed the required
certifications and that subawards contained the required clauses. Based on
our review, the mission has implemented procedures to verify that
certifications are signed and clauses are included in subawards. However,
the mission's policies on how its antiterrorism requirements apply to
awards other than contracts, grants, and cooperative agreements is
unclear.
Most Prime Awardees Signed Certifications, but the Mission Did Not Verify
Subawardee Certifications
The West Bank and Gaza mission generally ensured that prime awardees of
grants and cooperative agreements signed the required antiterrorism
certification;42 the required certifications were signed for all of the 46
applicable prime awards that we reviewed. However, although it has
required since April 2003 that all subgrantees also sign the
certification, until recently the mission did not verify that prime
awardees collected subgrantee certifications before they gave funds to the
subgrantees. About one-fourth of the 177 certifications for applicable
subgrants that we reviewed were signed after the subgrant start date, and
11 of the certifications were signed 6 months to more than a year after
subgrant approval. According to mission officials, prime contractors and
grantees are responsible, as part of their due diligence in receiving and
administering awards, to develop and maintain award files, including all
required or relevant preaward certifications and representations. They are
also legally obligated to adhere to laws and regulations, emphasizing
those in their subawards that ensure the proper use and accountability of
U.S. funds. Consequently, the mission stated that it is primarily the
responsibility of the prime awardees to ensure that required
certifications are contained in subawards. However, in responding to our
observation that it lacked a system to verify compliance, in March 2006
the mission revised its policy to require that all prime awardees submit
subgrantees' certifications to the mission before award approval.
41A prototype of the system was undergoing refinement and testing in
September 2006.
42The certification requirement is in AAPD 02-19 and subsequent revisions
and mission action memorandums. NGOs initially raised concerns about the
language contained in the certification and their potential liability for
subawardee compliance. Some refused to sign it altogether. Moreover, the
Palestinian Legislative Council's Economics Committee in May 2004
published a report that discouraged Palestinian NGOs from signing the
certification because it considered the requirement an affront to its
sovereignty and did not want any of its assistance to be conditioned.
USAID made revisions to the certification after lawyers representing NGOs
persuaded the agency to change the language. These changes resulted in
more Palestinian NGOs signing the certifications.
Some Prime Awards and Subawards Did Not Contain Required Clauses
Although the mission required for fiscal year 2005 that all prime awards
contain the antiterrorism, naming, and cash clauses and all subawards
contain the antiterrorism clause, some awards did not include all the
applicable clauses. As a result, some prime awardees and subawardees may
not have been aware of their responsibilities outlined within these
clauses. Similarly, prime awardees may not have been aware that they were
not to use U.S. funds to honor terrorists or provide U.S. cash assistance
to the Palestinian Authority.43
Prime Awards
While the West Bank and Gaza mission required that all prime awards
contain the antiterrorism, naming, and cash clauses, we found that many
did not include all three clauses. As table 1 shows, most of the awards
that we reviewed included the antiterrorism clause, including the UN
version of this clause when applicable. However, half of the awards did
not contain the naming clause and more than one in five did not contain
the cash clause.
Table 1: Percentages of USAID West Bank and Gaza Prime Awards that
Contained Required Clauses
Clause Percentage with clause
Antiterrorism 96
Naming 50
Cash 78
Source: GAO analysis of USAID data.
Notes: We reviewed 99 awards that were active during 2005. See enclosure I
for more information on our sampling methodology.
The 96 percent includes the UN-specific antiterrorism clause.
Subawards
The mission did not verify that subawards contained the antiterrorism
clause or require them to contain the naming and cash clauses. The mission
stated that existing regulations and policies do not require the mission
to verify the inclusion of certain clauses prior to making a subaward.
Instead it is primarily the responsibility of the prime awardee to ensure
that required clauses are contained in the subawards. However, as a result
of our review, the mission now requires prime awardees to provide the
mission with copies of the pages of the subawards containing the required
clauses.
43According to the mission, subsequent to our review, the mission has
verified that all current and active awards contain all three clauses.
o Antiterrorism clause. Although the mission has required since
2002 that prime awardees insert the antiterrorism clause in all
subawards, the mission did not maintain lists of all current
subawardees, including the type, amount, and duration of the
subawards, and did not routinely check for the antiterrorism
clause. As a result, until revising its policy in March 2006, the
mission had no way to determine the extent to which prime awardees
were complying with the requirement to include the clause in
subawards. Mission officials stated that it was the prime
awardees' responsibility to ensure that all subawards included the
required clause and that the mission used annual audits conducted
by the RIG to verify whether the prime awardees had included the
antiterrorism clause in all subawards. However, in commenting on a
draft of this report, RIG officials stated that the mission should
have its own verification system and not use RIG audits for this
purpose. Thirty-nine (about 10 percent) of the 393 applicable
subawards, which were associated with the prime awards active in
2005 that we reviewed, did not contain the antiterrorism clause at
the subaward start date. In six of these subawards, the clause was
added 2 or more years after the start date.44 With the issuance of
Mission Order 21 in March 2006, the mission now requires prime
awardees, including the UN, to provide copies of the subaward
sections containing the antiterrorism clauses.
o Naming clause. The naming clause was not required in subawards
for fiscal year 2005. With the issuance of Mission Order 21, the
mission now requires that all subawards include the clause.
o Cash clause. The mission did not require the cash clause in
subawards active in 2005. However, the Regional Legal Advisor
stated that West Bank and Gaza subawardees are nonetheless legally
obligated to adhere to the federal requirement on which the clause
is based. In commenting on a draft of this report, the mission
stated that it has modified all ongoing prime and subawards to
include the clause and that the clause will be required in all
future subawards.
Mission Antiterrorism Polices for Some Agreements Unclear
Although the mission has developed policies and procedures for applying
antiterrorism requirements to contracts, grants, and cooperative
agreements, it has not clearly delineated how its antiterrorism provisions
apply to certain other agreements used to transfer assistance. These
include consulting agreements, letters of understanding, memorandums of
understanding, and purchase orders (see enc. V for definitions of these
terms). We found that prime awards active in 2005 contained subawards that
were used to transfer more than $5 million in assistance through these
types of agreements.
44USAID did not provide documentation for 24 of the subawards;
consequently, inclusion of the antiterrorism clause could not be verified.
The regional legal advisor told us that without clear policies and
procedures for these other agreements, the mission applied its
antiterrorism provisions inconsistently. For example, the regional legal
advisor stated that the mission's antiterrorism provisions applied to
consulting agreements as they would to subcontracts. However, he also
stated that the consulting agreements did not need to include the
mandatory antiterrorism clause, which the mission requires in all
subcontracts. Further, according to a mission official, USAID's Office of
Transition Initiatives required that recipients of in-kind assistance45
through memorandums of understanding were supposed to sign the
antiterrorism certification. However, the mission did not enforce this
requirement until USAID's Office of the General Counsel instructed the
mission to require all in-kind assistance recipients to sign the
antiterrorism certification. In our examination of subaward information
provided by prime awardees, we found purchase orders with the
antiterrorism clause and others without. Similarly, we found memorandums
of understanding with the antiterrorism certification and others without.
Although the mission amended Mission Order 21 to address issues involving
in-kind assistance, the order does not clearly address how the mission's
antiterrorism provisions apply to the other agreements. In commenting on a
draft of this report, mission officials stated that there is no need to
specify other types of agreements by name in its mission order because the
mission order's language is broad enough to cover all awards that would
provide assistance whether cash or in-kind. We found that the language in
the mission order broadly defined "awards" as any contract, grant, or
cooperative agreement and any cash or in-kind assistance provided by USAID
or an implementing partner in any form. However, the language in the order
describing the types of agreements that require the antiterrorism
certification and clause is very specific. For example, the order states
that the certification requirement applies to all grants and cooperative
agreements, and the clause requirement applies to all contracts, grants,
and cooperative agreements. There is no mention of other types of
agreements. Consequently, this inconsistency between the level of
specificity in the award definitions and the descriptions of certain
antiterrorism provisions leaves their application to other types of
agreements open to interpretation.
USAID Complied with the Mandate to Audit Awardees, but the Audits Did Not
Help Ensure Compliance with Antiterrorism Provisions before Awards Were
Implemented
To address the 2003 mandate and subsequent related mandates to complete
financial audits of prime awardees and significant subawardees in fiscal
years 2003 through 2005, USAID's RIG in Cairo, Egypt, contracted with
Palestinian audit firms and the Palestinian offices of international audit
firms.46 Overall, the audits focused on compliance with financial and
accounting requirements-examining the fund accountability statement,
identifying whether award costs were allowable and reasonable, and
evaluating the awardee's internal controls. The audits also reviewed
compliance with various agreement provisions, laws, and regulations,
including the applicable requirements for vetting, certification, and
clauses.47
45The mission defines in-kind assistance as assistance provided in the
form of goods and services, such as medical supplies and equipment.
As of June 2006, the RIG issued 62 reports based on the contract auditors'
reviews for fiscal years 2003 through 2005. However, even though the
mandate was addressed, the audits' antiterrorism reviews were of limited
utility to the mission for ensuring compliance with antiterrorism
provisions prior to award implementation. This is primarily because the
audits were not initiated until after the award had been implemented. In
addition, the RIG's guidance to its contract auditors did not always
reflect the mission's antiterrorism policies and procedures and, in 2004
and 2005, did not address certain methodological guidance issued in
October 2003.
The RIG's Antiterrorism Compliance Reviews Were Not Initiated Until after
Awards Were Implemented
The timing of the RIG's financial audits and certain other issues limited
their usefulness to the mission for determining whether awardees had
complied with the
antiterrorism requirements. Because the primary focus of the RIG's audits
was financial, the audits were not initiated until after the award had
been implemented or, in some cases, completed. This means that any
shortcomings or omissions in conducting the required vetting or ensuring
that the antiterrorism certifications and clauses were in the awards or
subawards, as required, would not have been found by the auditors until
after the award or subaward had been made. As a result, the mission would
not have learned of any instances of noncompliance identified by the RIG's
auditors until after the award start date or, in some cases, until after
the award's conclusion.
In addition, as directed by the mandate, the RIG's audits focused on
contractors and grantees (and significant subawardees) implementing U.S.
assistance programs in the West Bank and Gaza. However, some prime
awardees in fiscal years 2002 through 2005 administered several awards. As
a result, once an award to a particular contractor, grantee, or
significant subawardee had been audited, other awards to the same awardee
would not necessarily have been examined, and compliance with
antiterrorism provisions for those awards or significant subawards would
not have been reviewed.
Moreover, about one-third of the RIG's audit reports issued in fiscal
years 2004 through 2006 did not clearly state which antiterrorist
provisions were examined, if any, or did not report the audit results. Of
the 62 reports, 14 reports (23 percent) did not state which mission
requirements for vetting, certification, and clauses were applicable, if
any, or whether compliance with them was reviewed. An additional seven
reports (11 percent) stated that compliance with the mission's
antiterrorism provisions was reviewed but did not provide any statement of
the results.
46To conduct the audits, up to $1 million was provided in each fiscal year
to the USAID Office of the Inspector General.
47In 2003, the RIG issued supplementary guidance to its contract auditors
addressing antiterrorism provisions and also specified requirements in its
contract auditor's statements of work from 2003 through 2005.
In commenting on a draft of this report, the mission stated that it used
annual audits managed by the RIG to verify whether the prime awardees were
in compliance with antiterrorism certification and clause requirements. It
also stated that the audits served to strengthen and improve compliance
with antiterrorism requirements. However, the Inspector General's Office
stated in its response to a draft of this report that since the mission is
responsible for ensuring compliance with antiterrorism provisions, the
mission should develop a system other than relying solely on financial
audits, which are conducted after awards are made to ensure that funds
provided to awardees are being spent as intended.
Auditors' Guidance Did Not Always Reflect Mission Policy and Was Not Clear
on Audit Methodology for Subawards
In some instances, the written guidance provided to the RIG's contract
auditors did not reflect the mission's policies and procedures for
vetting, certifications, and clauses.
o Vetting. Although the mission implemented its vetting policies
and procedures in October 2002, the written guidance to auditors
in September and October 2003 did not explicitly require that they
confirm that vetting was done. However, the statements of work
provided to auditors in 2004 and 2005 included specific language
directing auditors to determine compliance with vetting
procedures.
o Certifications. The October 2003 written guidance regarding
antiterrorism certifications differed from the mission's policy at
the time. The mission required signed certifications for all
awards and subawards, but the RIG guidance did not direct the
auditors to verify that certifications were signed for subgrants
under grants.48
o Clauses. The RIG's written guidance directed the auditors to
check for a less detailed version of the antiterrorism clause than
mission guidance called for. The clause provided to the auditors,
unlike the mission's version, did not state that (1) it was
required in subawards, (2) awardees must promptly notify USAID of
significant changes in key individuals, or (3) USAID reserves the
right to approve or reject certain subawardees.
In addition, the RIG's October 2003 supplementary guidance to its auditors
prohibited selecting a random sample of subawards to review for compliance
with the antiterrorism certifications and clauses. However, the statements
of work for fiscal years 2004 and 2005 did not specify whether auditors
should select a sample of subawards or examine all subawards. Two contract
audit firms were hired after the 2003 guidance was issued. We found that
these firms had not received the guidance; consequently, unless the
auditors were otherwise aware of the October 2003 guidance, some auditors
may not have reviewed all subawards.
48The October 2003 guidance to contract auditors stated that the
certification requirement applies to the prime recipients of grants, as
well as to the recipients of grants under contracts, but it does not apply
to subgrantees under grantees.
Conclusion
The January 2006 election victory of Hamas in the Palestinian Legislative
Council has led to increased concern that U.S. assistance to the West Bank
and Gaza not support terrorists, as required by U.S. antiterrorism
provisions. Although the USAID West Bank and Gaza mission developed
policies and procedures for antiterrorism vetting, certifications, and
clauses, its implementation of the provisions limited the mission's
ability to ensure that U.S. assistance was not provided to terrorists or
was used to support terrorism. Since our review, the mission has taken
steps to correct many of these limitations, but others remain to be
addressed.
o Although the mission has begun to collect more complete
identifying information for vetting key individuals, its lack of a
procedure to verify this information means that it cannot be
certain that the information is accurate.
o Unresolved problems with the mission's vetting management
database continue to affect its reliability, maintenance, and
security, and the mission's recent elimination of a requirement
that awardees be periodically revetted makes it less likely the
mission will detect an awardees' terrorist associations that
develop after initial vetting.
o Because the mission still does not require that prime awardees
include the cash clause in all subawards, some subawardees may not
be aware of their contractual responsibility not to support the
Palestinian Authority.
o The mission's lack of formal policies and procedures for
applying its antiterrorism provisions to financial agreements
other than contracts, grants, and cooperative agreements may have
resulted in some U.S. assistance going to the West Bank and Gaza
without applying the antiterrorism provisions.
Despite the difficulty of the task, the mission should do more to ensure
that U.S. assistance is not provided to terrorists or those who support
terrorism.
To comply with the 2003 mandate to conduct financial audits of mission
awardees, USAID's RIG contracted for audits and included the requirement
to review compliance with antiterrorism provisions. However, financial
audits are typically initiated after an award has been implemented or, in
some cases, completed. As a result, the audits were of limited utility to
the West Bank and Gaza mission for helping ensure compliance with the
vetting, certification, and clause requirements, which, according to
mission guidance, should be met before the award is made. In addition, the
guidance for the RIG's contract auditors did not always reflect the
mission's policies and procedures for vetting, certifications, and clauses
at the time of the award; and the RIG's October 2003 methodological
guidance for examining subawards was not incorporated into its written
guidance for 2004 and 2005. To enhance the mission's ability to promptly
identify and address any lack of compliance with U.S. antiterrorism
provisions, the mission needs to develop a system to review and report on
compliance with its antiterrorism requirements before the awards are made
and to ensure that the guidance provided for such reviews reflects the
mission's policies and procedures at the time and adequately documents
methodological approaches.
Recommendations for Executive Action
To help ensure that U.S. assistance to West Bank and Gaza does not support
terrorist activity, we recommend that the Director of U.S. Foreign
Assistance and USAID Administrator direct the mission to take the
following four actions:
o consider (1) verifying the identifying data it collects for
vetting, such as date of birth, by requiring Israeli
identification cards or some other form of identification and (2)
rescinding its decision to eliminate periodic revetting of
awardees;
o ensure that the mission's vetting management database promotes
data reliability, satisfies technical documentation requirements,
and meets all applicable security requirements;
o ensure that the cash clause is included in all subawards before
they are initiated; and
o develop policies and procedures that address how each
antiterrorism provision applies to consulting agreements, letters
of understanding, memorandums of understanding, and purchase
orders.
We also recommend that the Director of U.S. Foreign Assistance and USAID
Administrator and the West Bank and Gaza mission, in cooperation with
USAID's Office of the Regional Inspector General-Cairo, develop a review
and reporting system other than USAID's financial audits to help ensure
that the requirements for vetting, certifications, and clauses for each
award and applicable subawards are met before the financial agreements are
implemented. This system should also ensure that the reviews (1) reflect
applicable West Bank and Gaza mission policies and procedures for vetting,
certification, and clauses at the time of the awards; and (2) have a clear
and consistent audit methodology for examining subawards.
Agency Comments and Our Evaluation
USAID and USAID's Office of Inspector General provided written comments on
a draft of this report. See enclosures II and III, respectively. State did
not provide written comments. In addition, USAID, the USAID Regional
Inspector General-Cairo, and State provided us with technical comments and
updates, which we have incorporated throughout this report, as
appropriate. In its written comments, USAID also suggested several points
of clarification, which we have also incorporated.
Overall, USAID noted that our fieldwork and draft report made a positive
contribution to improving and strengthening the mission's antiterrorism
procedures. As we note throughout the report, the mission acted on or
began acting on many of our findings while the engagement was ongoing.
USAID accepted our recommendations to modify its vetting procedures,
improve its vetting management database, and ensure that the cash clause
is included in all subawards. It noted the mission has begun or completed
action to address these issues.
However, USAID disagreed with our recommendation that it should develop
policies and procedures for applying antiterrorism provisions to other
assistance agreements, such as memorandums of understanding and purchase
orders. It noted that these "unusual instruments" either do not provide
assistance or are already covered by the mission's current guidance. We
note that since our review the mission has amended Mission Order 21 to
apply antiterrorism provisions to in-kind assistance. We also note that,
while the order is very specific regarding contracts, grants, and
cooperative agreements (and now in-kind assistance), it does not
specifically address other types of agreements. We believe the mission
still needs to clarify how antiterrorism provisions apply to all types of
agreements the mission uses.
Finally, the USAID Inspector General said his office would be pleased to
cooperate with the mission to develop a system to help ensure that the
antiterrorism provisions are met before financial agreements are
implemented. The Inspector General did not specifically address our
recommendation that it ensure that its audit guidance reflects applicable
mission policies and that its methodology for examining subawards is clear
and consistent. USAID agreed about the necessity of an improved system for
ensuring compliance with antiterrorist provisions before prime awards and
subawards are implemented. However, it noted that this responsibility
rests with the mission and the prime awardees, and should not be the
subject of "preaward audits." USAID also noted that its contractors and
grantees are long-standing implementing partners who are cognizant of
their obligations to adhere to federal and USAID policies and guidance.
Moreover, as of March 2006, the mission began systematically verifying
that subawardees signed the required certifications and that subawards had
the mandatory clauses. We purposely did not specify how the mission should
ensure that its antiterrorism provisions are in place before awards are
implemented. We recommended that USAID and the West Bank and Gaza mission
cooperate with the USAID Regional Inspector General-Cairo to develop such
a system because the mission had relied on its audits in the past.
- - - - -
Copies of this report are being sent to the Secretary of State, the
Director of Foreign Assistance and USAID Administrator, the USAID
Inspector General, relevant congressional committees, and other interested
parties. We will also make copies available to others upon request. In
addition, the report will be made available at no charge on GAO's Web site
at http://www.gao.gov .
If you or your staff have any questions about this report, please contact
me on (202) 512-3149 or at GootnickD@gao.gov . Contact points for our
Office of Congressional Relations and Office of Public Affairs may be
found on the last page of this report. Major contributors to this report
are listed in enclosure IV.
David Gootnick, Director
International Affairs and Trade
Enclosures
Enclosure I
Scope and Methodology
To determine the extent to which the United States Agency for
International Development's (USAID) West Bank and Gaza mission (the
mission) complied with Executive Order 13224 and the various antiterrorist
restrictions in the Consolidated Appropriations Acts of 2003, 2004, and
2005, we examined the mission's implementation of several USAID
Acquisition and Assistance Policy Directives issued since 2002. Because we
were mandated to examine USAID's use of fiscal year 2005 funding for the
West Bank and Gaza, we focused our review on the mission's contracts,
grants, and cooperative agreements (and related subawards) that were
active during fiscal year 2005 and had received fiscal year 2005 funds
through March 2006. In February 2006, we traveled to Tel Aviv, Israel, and
discussed the mission's implementation of the antiterrorism requirements
with the USAID Mission Director, his senior staff, project officers,
contract technical officers, and other USAID mission officials responsible
for managing assistance projects and overseeing contracts, grants, and
cooperative agreements. We reviewed the mission's antiterrorism guidance
and examined in detail (1) the mission's vetting documentation and vetting
management database to determine if the mission had documented that it had
vetted awardees and subawardees, as required; and (2) the various
financial agreements' records to determine if antiterrorism certifications
had been signed and the required clauses were in the awards and subawards,
as required.
o To understand the mission's vetting process, we discussed with
various mission officials, including the Regional Legal Advisor,
how the process worked. We examined the documentation provided to
the mission in response to its vetting for organizations and
individuals. To gain a better understanding of the vetting
responses, we randomly selected a probability sample49 of 520
vetting results memorandums accumulated by the mission beginning
in 2002 through March 2006. We also discussed the operation of the
mission's vetting management database with the foreign service
national charged with maintaining it at the time of our review. He
provided us access to the vetting database and its related
documentation. In addition, during our review, we obtained related
information from the Defense Intelligence Agency, the Central
Intelligence Agency, and the Departments of State and Treasury.
o To determine whether the mission's prime awards contained the
antiterrorism certification and clauses, as required, we reviewed
the mission's files for all 99 prime awards that were active
during 2005. Of the 99 prime awards, 20 were cooperative
agreements and 3 were grants. To determine whether the subawards
contained the required antiterrorism certifications and clauses,
we reviewed all 99 prime awards to determine which had subawards.
We found 67 prime awards with a total of 931 subawards. We then
examined the subawards as follows:
o For antiterrorism certifications, the requirement
applied to any subgrants issued under a contract,
grant, or cooperative agreement after April 1, 2003.
We found that 14 prime awards (6 contracts, 2 grants,
and 6 cooperative agreements) had subgrants that
required an antiterrorism certification. For 13 of
these prime awards, we examined all the applicable
subgrants, for a total of 104. However, 4 of these
were not dated, and thus, could not be assessed. The
remaining prime
award had 190 applicable subgrants. We selected a
random sample of 73 of these. Therefore, we examined
a total of 177 (about 60 percent) out of 294
applicable subgrants under 14 prime awards.
o For the antiterrorism clauses, the requirement
applied to any subawards under prime awards that were
issued on or after March 20, 2002. In some cases,
prime awards entered into prior to March 20, 2002,
were modified to include the clause, and those
related subawards also required the clause as of the
date of the modification. Of a total of 488 subawards
that fit this category, 24 were missing documentation
and therefore could not be analyzed. Seventy-one of
these subawards were affiliated with UN agencies and
therefore did not require the clause to be included
in subawards. Therefore, we found that a total of 393
subawards were required to contain the clause and we
examined all of them.
49With a probability sample, each member of the study group (in this case,
the mission's vetting results memorandums) has a known chance of being
selected. Our sample was only one of a large number of samples that we
might have drawn. Since each sample could have provided different
estimates, we express our confidence in the precision of our particular
sample's results as a 95 percent confidence interval. For this estimate of
94 percent, the confidence interval extends from 88 to 98 percent. This is
the interval that would contain the actual population value for 95 percent
of the samples we could have drawn.
For our analysis of the mission's financial agreements, we developed a
data collection instrument to help ensure that our reviews of the
mission's files were consistent. To help us track and analyze the
information collected, we developed a database to record the data for each
award. For each prime award, we recorded information regarding vetting,
certification, and clauses, as well as more than 30 other data elements,
including the award number, project name, start and end dates, and
objectives and goals. For each subaward, we recorded key information about
the certifications and antiterrorism clause, as well as the subaward type,
signature date, dollar value, subawardee name, U.S. or non-U.S.
designation, and key individuals' names. During our review of the
mission's financial agreement files, we discussed any conflicting data or,
in some cases, missing data, with the cognizant project officer or
contract technical officer. In this way, we resolved any apparent
disparities and satisfied ourselves that the data we compiled were
sufficiently reliable for the purposes of this report.
In reviewing the RIG's financial audits that addressed, in part, the West
Bank and Gaza mission's compliance with its antiterrorism provisions, we
examined 62 audit reports on assistance to the West Bank and Gaza issued
in fiscal years 2004 through 2006. These reports covered awards active
from 2002 through 2005. In addition, we traveled to Cairo, Egypt, and met
with RIG officials to discuss its audit coverage of USAID West Bank and
Gaza awards. When we were not clear about the audit reports' scope and
methodology, we followed up with the cognizant Regional Inspector General
(RIG) official. In this way, we resolved any apparent disparities and
satisfied ourselves that the data we compiled were sufficiently reliable
for the purposes of this report.
Enclosure II
USAID Comments
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See
comment 1.
See
comment 2.
See comment 3.
See comment 4.
See comment 5.
See comment 6.
See comment 7.
The following are GAO's comments on USAID's letter dated September 22,
2006.
1. The diagram provided by USAID has been included with the
agency's comments.
2. Information pertaining to the overall purpose of USAID's
assistance is included in the background section of the report.
3. USAID disagrees with our recommendation that it should develop
antiterrorism policies and procedures for "unusual" instruments
such as memorandums of understanding and purchase orders. USAID
stated that it believes that its current policies and procedures
are broad enough to cover all types of assistance agreements. We
believe that clarifying the definitions of awards and subawards
contained in mission order 21 and how antiterrorism provisions
apply to other types of awards could help ensure that
antiterrorism policies are correctly and consistently applied. We
added additional evidence and information to the report to further
demonstrate the need to clarify the policies and procedures.
4. We agree that the responsibility for ensuring that the
antiterrorism policies and procedures are correctly and
consistently applied rests with the mission and prime awardees. We
purposely did not specify how the mission should ensure that its
antiterrorism provisions are in place before awards are
implemented. We recommended that USAID and the West Bank and Gaza
mission cooperate with the USAID Regional Inspector General-Cairo
to develop such a system because the mission had relied on its
audits in the past. We also noted in the report that USAID now
requires that awardees provide copies of required certification
and award sections containing the antiterrorism-related clauses
prior to award approval.
5. In technical comments USAID provided on a draft of this report,
USAID stated that it is planning to obtain an additional
certification from awardees as to the accuracy of key individuals'
names and other data provided. We added information to the report
to reflect this new procedure.
6. We describe the corrective actions that USAID is taking to
improve its vetting management database where applicable in the
report.
7. Additional information has been added to the report that
describes the additional conditions that would require that
revetting occur. USAID also stated in its technical comments that
it plans on reinstating a periodic revetting requirement. This
change in policy has been added to the report.
Enclosure II
USAID Inspector General Comments
Enclosure IV
GAO Contact and Staff Acknowledgments
GAO Contact
David Gootnick (202) 512-3149
Staff Acknowledgments
Albert H. Huntington, III; David M. Bruno; Jeffrey L. Hartnett; Arthur
James; and Robert E. Lee made key contributions to this report. In
addition, Claude T. Adrien, Martin de Alteriis, Etana Finkler, Reid L.
Lowe, Grace P. Lui, and Jose M. Pena provided technical assistance.
Enclosure V
Glossary
USAID has used the following types of financial agreements to transfer
assistance in the West Bank and Gaza.50
Consulting agreements are used to retain, in an advisory role, an
individual considered an expert in his or her field. The contractual form
may be an employment agreement or subcontract, depending on the
organization's practices.
Contracts are principally used to acquire property or services for the
use of the federal government.
Cooperative agreements are used to transfer money, property, or services
to provide federally authorized support or stimulation in which USAID is
expected to be substantially involved.
Grants are principally used to transfer money, property, or services to
provide federally authorized support or stimulation in which USAID is not
expected to be substantially involved.
Letters of agreement are used to record a common understanding where
USAID's standard provisions would not otherwise be required to be
incorporated to apply specific conditions on the interaction.
Memorandums of understanding (MOUs) set forth an agreement between
parties. An MOU may be used to cover a range of topics, including results
to be achieved, activities to be implemented, and the respective roles and
responsibilities of each party. An MOU is not used for obligating funds.
However, an MOU may be used to confirm an agreement with a host government
on a program that USAID will fund directly through an obligating agreement
signed with other parties.
Purchase orders set forth USAID's contractual agreement for small
purchases of goods and services.
(320379)
50These definitions are from the USAID Automated Directives System
Glossary and West Bank and Gaza mission staff.
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