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





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

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

                                HEARING

                               BEFORE THE

           SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 9, 2015

                               __________

                           Serial No. 114-21


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




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                        COMMITTEE ON AGRICULTURE

                  K. MICHAEL CONAWAY, Texas, Chairman

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

                                 ______

                    Scott C. Graves, Staff Director

                Robert L. Larew, Minority Staff Director

                                 ______

           Subcommittee on Livestock and Foreign Agriculture

                 DAVID ROUZER, North Carolina, Chairman

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

                                  (ii)

















                             C O N T E N T S

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

                               Witnesses

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

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

                              ----------                              


                         THURSDAY, JULY 9, 2015

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

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

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

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

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

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

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

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

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

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

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

July 9, 2015

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

    Thank you for this opportunity to discuss our recent work reviewing 
international food assistance delivered through cash transfers or 
voucher programs funded and overseen by the U.S. Agency for 
International Development (USAID). For over 60 years, the United States 
has provided assistance to food-insecure countries primarily in the 
form of food commodities procured in the United States and transported 
overseas. In recent years, the United States has joined other major 
donors in increasingly providing food assistance in the form of cash or 
vouchers. In addressing humanitarian crises around the world, USAID 
currently implements a cash-based program--the Emergency Food Security 
Program (EFSP)--through its Office of Food for Peace (FFP), with 
funding from the International Disaster Assistance account.\1\ In 
Fiscal Year 2014, FFP's funding of targeted cash transfer and food 
voucher programs amounted to about $410 million, the majority of which 
was for the Syria crisis; in Fiscal Years 2010 through 2014, it totaled 
about $991 million.\2\ In addition, FFP manages the majority of U.S. 
international food assistance--primarily in-kind food aid commodities--
authorized by Title II of the Food for Peace Act, which in Fiscal Year 
2015 totaled about $1.47 billion.\3\
---------------------------------------------------------------------------
    \1\ The International Disaster Assistance (IDA) account funds 
programs authorized by Chapter 9 of the Foreign Assistance Act of 1961, 
as amended (22 U.S.C.  491 et seq.), and receives appropriations 
pursuant to annual appropriations acts for Foreign Operations. 
Appropriations for Fiscal Years 2013 and 2014 included amounts 
designated by Congress for Overseas Contingency Operations (OCO) for 
the purpose of addressing humanitarian crises, including the Syria 
crisis.
    \2\ EFSP also funds local and regional procurement projects, which 
totaled $1.2 billion in Fiscal Years 2010 through 2014. In addition, 
with funding from the Emergency Refugee and Migration Assistance and 
the Migration and Refugee Assistance budget accounts the U.S. 
Department of State's (State) Bureau of Population, Refugees, and 
Migration provides U.S. contributions to several multilateral 
organizations including the UN World Food Programme (WFP), among 
others. For example, over the past 4 years, the bureau supported cash-
based food assistance activities as follows: in Fiscal Years 2010 and 
2011, $5 million and $7.7 million, respectively, to WFP for in-kind 
food and vouchers to Iraqi refugees living in Syria; and in Fiscal Year 
2014, $1.2 million to WFP for repatriating refugees from the Republic 
of the Congo.
    \3\ Title II is reauthorized through the farm bill approximately 
every 5 years and is funded through the U.S. Department of Agriculture 
budget. Title II of the Food for Peace Act, administered by USAID, 
addresses donation of agricultural commodities for humanitarian 
purposes. In this report, we refer to the Food for Peace Act as Title 
II.
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    My testimony summarizes the findings from our report issued in 
March of this year,\4\ which had two objectives: (1) to review USAID's 
processes for awarding and modifying cash-based food assistance 
projects and (2) to assess the extent to which USAID and its 
implementing partners have implemented financial controls to help 
ensure appropriate oversight of such projects. To address these 
objectives, we analyzed data and reviewed program documents provided by 
USAID and its implementing partners, including the United Nations (UN) 
Food and Agriculture Organization (FAO), the UN World Food Programme 
(WFP), and selected nongovernmental organizations (NGO).\5\ To review 
USAID's processes for awarding and modifying cash-based food assistance 
projects, we reviewed USAID's program guidance and relevant directives, 
as well as grant proposals and agreements.\6\ Given that FFP's cash-
based projects are to monitor market conditions to detect significant 
changes that may warrant project modifications, we also analyzed price 
data for key staple commodities in selected markets in four case study 
countries: Jordan, Kenya, Niger, and Somalia.\7\ To assess the extent 
to which USAID and the implementing partners implemented financial 
controls, we reviewed documentation and reports related to the cash and 
voucher distributions in our case study countries, and assessed the 
controls they have designed and implemented against their policies, 
procedures, guidance; Federal internal control standards; and 
international principles and guidelines.\8\
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    \4\ GAO, International Cash-Based Food Assistance: USAID Has 
Developed Processes for Initial Project Approval but Should Strengthen 
Financial Oversight, GAO-15-328 (http://www.gao.gov/products/GAO-15-
328) (Washington, D.C.: Mar. 26, 2015).
    \5\ We use the term ``implementing partners'' to refer to entities 
such as WFP, FAO, and NGOs that are awarded U.S. Government grants to 
carry out food assistance activities overseas. WFP and FAO may contract 
with international and local NGOs as sub-awardees.
    \6\ This review focused on cash and voucher interventions funded 
under EFSP. We did not include local and regional procurement funded 
through EFSP, which some consider to be a form of cash-based food 
assistance.
    \7\ We selected these four countries on the basis of several 
factors including the level of USAID EFSP funding, the types of 
modalities and mechanisms used to transfer the assistance, implementing 
partners, security concerns and risks, and logistics and budget 
constraints. We cannot generalize our findings from these four 
countries to the other countries where USAID has funded cash-based food 
assistance projects.
    \8\ GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (http://www.gao.gov/products/GAO/AIMD-00-21.3.1) 
(Washington, D.C.: November 1999); Committee of Sponsoring 
Organizations of the Treadway Commission, Internal Control--Integrated 
Framework (September 1992) and Internal Control--Integrated Framework 
(May 2013); and International Organization for Standardization, ISO 
31000, Risk Management--Principles and Guidelines (2009).
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    In Washington, D.C., we interviewed officials from the Department 
of State (State), the U.S. Department of Agriculture (USDA), and USAID. 
We also met with officials representing NGOs that were awarded EFSP 
grants to serve as implementing partners in carrying out U.S. food 
assistance programs overseas or were sub-awardees for USAID grants 
awarded to WFP (and in some cases were both). In Rome, we met with 
officials from the U.S. Mission to the United Nations, FAO, and WFP. We 
also met with the UN permanent representatives for three major donors--
Canada, the European Union, and the United Kingdom. In addition, we 
conducted fieldwork in three countries (Jordan, for Syrian refugees; 
Kenya; and Niger) where we met with officials from the U.S. missions, 
implementing partners, vendors, financial institutions, and 
beneficiaries, among others.\9\ Further details on our scope and 
methodology can be found in our March 2015 report. In June 2015, USAID 
provided GAO with information on its progress in addressing the 
recommendations from our March 2015 report. The work upon which this 
testimony was based was conducted in accordance with generally accepted 
government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to provide 
a reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives.
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    \9\ We interviewed staff from USAID and its implementing partners 
in Nairobi who had responsibility for oversight of the EFSP-funded 
operations in both Kenya and Somalia.
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Background
    USAID's cash-based food assistance program started in 2008 under 
the management of its Office of Foreign Disaster Assistance. In June 
2010, management of the program was transferred to FFP. In 2014, FFP 
provided EFSP funding for cash and voucher projects in 28 countries, 
including some countries with areas considered high security risk. 
Obligations for cash-based EFSP projects grew from $75.8 million in 
Fiscal Year 2010 to $409.5 million in Fiscal Year 2014--an increase of 
440 percent over the 5 year period, the majority of which was in 
response to a large and sustained humanitarian crisis in Syria, 
including cash-based food assistance to Syrian refugees in the Syria 
region.\10\ Of the $991 million in total grant funding obligated in 
Fiscal Years 2010 to 2014, $330.6 million was for cash interventions 
and $660.3 million was for voucher interventions. The majority of the 
funding--$621.7 million (or 63 percent)--was awarded to WFP, and $369.3 
million (or 37 percent) was awarded to other implementing partners.
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    \10\ These obligations included funds designated for OCO. The 
targeted food voucher program in Syria was funded with IDA, including 
amounts designated for OCO, in 2013 and was entirely funded with IDA 
funds designated for OCO in 2014, according to data from USAID. IDA 
obligations for cash transfer and voucher programs, including amounts 
designated for OCO, increased from $75.8 million in Fiscal Year 2010 to 
$136.9 million in Fiscal Year 2014.
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    To deliver cash-based food assistance, USAID's implementing 
partners employ a variety of mechanisms ranging from direct 
distribution of cash in envelopes to the use of information 
technologies such as cell phones and smart cards to redeem electronic 
vouchers or access accounts established at banks or other financial 
institutions (see Fig. 1). The value of cash and voucher transfers is 
generally based on a formula that attempts to bridge the gap between 
people's food needs and their capacity to cover them.\11\
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    \11\ The cash and voucher transfers can be either (1) conditional 
transfers, where certain requirements are imposed on beneficiaries such 
as their participation in community work programs or attending training 
or going to school; or (2) unconditional transfers, whereby no 
requirements on beneficiaries are made, and the assumption is that 
beneficiaries will use the cash or vouchers to obtain food based on a 
household assessment of food access and availability.
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Figure 1: Types of Cash and Voucher Mechanisms Used to Deliver Cash-
        Based Food Assistance
      
      
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]      
        
          Source: GAO analysis of data from the U.S. Agency for 
        International Development and the United Nations World Food 
        Programme.  GAO-15-760T.

    Financial oversight in cash-based food assistance programs includes 
managing program funds to ensure they are spent in accordance with 
grant agreements by, among other things, assessing financial risks and 
implementing controls to mitigate those risks, including controls to 
prevent theft and diversion of cash, counterfeiting of vouchers, and 
losses. Standards for Internal Control in the Federal Government 
provides the overall framework for establishing and maintaining 
internal control in Federal programs.\12\ In addition, the Committee of 
Sponsoring Organizations of the Treadway Commission (COSO) has issued 
an internal control framework that, according to COSO, has gained broad 
acceptance and is widely used around the world.\13\ Both frameworks 
include the five components of internal control: control environment, 
risk assessment, control activities, information and communication, and 
monitoring. Internal control generally serves as a first line of 
defense in safeguarding assets, such as cash and vouchers.\14\ In 
implementing internal control standards, management is responsible for 
developing the detailed policies, procedures, and practices to fit the 
entity's operations and to ensure they are built into and are an 
integral part of operations.
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    \12\ GAO/AIMD-00-21.3.1. (http://www.gao.gov/products/GAO/AIMD-00-
21.3.1) These internal control standards were revised in September 
2014, and the revisions will become effective for Fiscal Year 2016.
    \13\ Committee of Sponsoring Organizations of the Treadway 
Commission, Internal Control--Integrated Framework (1992). COSO was 
formed in 1985 to sponsor the National Commission on Fraudulent 
Financial Reporting, an independent, private sector initiative that 
studied the causal factors that can lead to fraudulent financial 
reporting. In 1992, COSO issued Internal Control--Integrated Framework 
to help businesses and other entities assess and enhance their internal 
control. Since that time, COSO's internal control framework, which was 
updated in May 2013, has been recognized by regulatory standards 
setters and others as a comprehensive framework for evaluating internal 
control, including internal control over financial reporting.
    \14\ In 2004, COSO issued Enterprise Risk Management--Integrated 
Framework to help entities better deal with risk in achieving their 
objectives. It defines enterprise risk management as ``a process, 
effected by an entity's board of directors, management, and other 
personnel, applied in strategy setting and across the enterprise, 
designed to identify potential events that may affect the entity, and 
manage risk to be within its risk appetite, to provide reasonable 
assurance regarding the achievement of entity objectives.''
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USAID Had Developed Processes for Awarding EFSP Funds but Lacked 
        Guidance on Modifying Awards and Responding to Changing Market 
        Conditions
    In our March 2015 report, we found that USAID had developed 
processes for awarding cash-based food assistance grants; however, it 
lacked formal internal guidance for its process to approve award 
modifications and provided no guidance for partners on responding to 
changing market conditions that might warrant an award modification.
    USAID's process for awarding EFSP funds. USAID outlined its process 
for reviewing and deciding to fund proposals for cash-based food 
assistance projects in the Annual Program Statement (APS) for 
International Emergency Food Assistance.\15\ According to USAID, the 
APS functions as guidance on cash-based programming by describing 
design and evaluation criteria for selecting project proposals and 
explaining the basic steps in the proposal review process. The APS also 
serves as a primary source of information for prospective applicants 
that apply for emergency food assistance awards using EFSP resources. 
Under the terms of the APS, USAID awards new cash-based food assistance 
grants through either a competitive proposal review or an expedited 
noncompetitive process. For our March 2015 report, we reviewed 22 
proposals for new cash-based food assistance projects that were awarded 
and active as of June 1, 2014; we found that USAID made 13 of these 
awards through its competitive process, seven through an abbreviated 
noncompetitive review, and two under authorities allowing an expedited 
emergency response.
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    \15\ See U.S. Agency for International Development, Bureau for 
Democracy, Conflict, and Humanitarian Assistance, Office of Food for 
Peace, Annual Program Statement for International Emergency Food 
Assistance, Opportunity Number APS-FFP-13-000001. USAID has published 
annual program statements for this program on its website at http://
www.usaid.gov/what-we-do/agriculture-and-food-security/food-assistance/
programs/emergency-programs.
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    USAID lacked guidance for staff on modifying awards. In our March 
2015 report, we found that although the APS outlined the review process 
for new award proposals, neither the current 2013 APS nor the two 
previous versions provide clear guidance on the process for submission, 
review, and approval of modifications to existing awards. According to 
USAID officials, USAID follows a similar process in reviewing requests 
to modify ongoing awards, which implementing partners may propose for a 
variety of reasons, such as an increase in the number of beneficiaries 
within areas covered by an award or a delay in completing cash 
distributions. Two main types of modifications may be made to a grant 
agreement--no-cost modifications and cost modifications. For the four 
case study countries, in our March 2015 report, we reviewed 13 grant 
agreements made from January 2012 to June 2014 that had 41 
modifications during that period. Twenty of these cost modifications 
resulted in an increase in total funding for the 13 grants from about 
$91 million to about $626 million, a 591 percent increase. Ten of these 
cost modifications were made to one award, the Syria regional award, 
whose funding increased from $8 million to $449 million (see Fig. 2). 
The Syria regional award modifications amounted to about 82 percent of 
the total increase in funding for the cost modifications we reviewed.
Figure 2: Timeline of the Modifications Made to the Ongoing Syria 
        Regional Award, from July 2012
       
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]       
       
        
          Source: GAO analysis of U.S. Agency for International 
        Development data.  GAO-15-760T.

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

August 14, 2015

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

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

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

    On behalf of the U.S. Agency for International Development (USAID) 
Office of Inspector General (OIG) I am pleased to have had the 
opportunity to appear before the Subcommittee on Livestock and Foreign 
Agriculture of the House Committee on Agriculture to discuss oversight 
and monitoring of U.S. food assistance programs under Title II of the 
Food for Peace Act. During the hearing, Congressmen King, Conaway, and 
Newhouse posed questions that required additional follow-up on my part 
and I committed to providing responses at a later date. These responses 
appear below and are presented in the order of the questions that were 
asked.
     Congressman King cited a reference in my written statement to the 
diversion of commodities in East Africa and sought the names of the 
specific countries in which the diversion occurred. In this case, USAID 
food assistance programs underway in Ethiopia were affected by large-
scale division of commodities, specifically grain. The grain was 
relayed to and processed by a local flour factory, which sent the flour 
to parts of Ethiopia, as well as to Somalia and Kenya.
    Chairman Conaway sought additional information regarding the 
duplication of efforts that USAID OIG identified in connection with a 
Title II program in Haiti, which I also mentioned in my written 
statement. The Chairman further asked whether the Title II program 
activities that OIG audited were in response to emergency circumstances 
or as part of a long running effort to provide assistance. USAID OIG's 
audit report, Audit of USAID/Haiti's Public Law 480 Title II Programs, 
addressed Title II activities that were conducted under non-emergency 
circumstances, directed by USAID's Office of Food for Peace in 
Washington, D.C., and managed and monitored out of USAID's mission in 
Haiti. The audited activities consisted of a multi-year effort to 
improve food security and increase the resilience of vulnerable rural 
households. Under the program, USAID made three awards, which began in 
February 2008 and ran through September 2012 in two cases and through 
February 2013 in a third. In the audit report, we cited evidence of 
duplication with USAID-funded programs in two Title II regions in 
Haiti. One case involved the overlap of Title II agricultural 
activities with another program with a similar focus, USAID's Watershed 
Initiative for National Natural Environmental Resources (WINNER). OIG 
attributed the problem to a lack of communication and also cited the 
USAID mission's decision to continue WINNER in the same area, despite 
an earlier assertion that it would end the program and therefore limit 
the extent of duplication. At the time, USAID officials committed to 
follow up on the problem and, later, indicated that the mission 
established a tracking tool to record and monitor activities in the 
area with the purpose of avoiding ``wasteful duplication'' of efforts.
    The second case of overlap that related to USAID's Title II efforts 
in Haiti concerned the work of a grant recipient under the 
International Food Relief Partnership (IFRP). OIG's audit report noted 
that, while IFRP relies on its applicants to identify potential 
overlap, applicants are not always aware of activities under other 
USAID programs and the wording of this requirement in IFRP's grant 
application is not clear. Auditors also noted that USAID's mission in 
Haiti had not initially identified the potential overlap as a problem. 
While the Title II implementer had advised USAID's mission in Haiti of 
duplication and the mission confirmed the overlap, communication to 
USAID staff in Washington on the subject reportedly went unanswered. 
The IFRP grantee subsequently stopped distributing food pending further 
discussions between USAID and its Title II implementer.
    Last, Congressman Newhouse asked whether USAID continues to use a 
shipping company that I referenced in my opening statement. The 
shipping company had recently reached a $836,630 civil settlement with 
the U.S. Department of Justice after a USAID OIG investigation 
concluded that the company had billed USAID at a higher rate than it 
should have for more than 4 years. USAID continues to use this shipping 
company.
    I trust the information above is responsive to each Member's 
question and thank you for your interest in the effectiveness of U.S. 
food assistance programs abroad. I also appreciate your support of the 
oversight work conducted by USAID OIG and by our partners in the 
Federal oversight community. Should you require further information 
regarding our work, please contact me; or, your staff may contact 
Justin Brown, Chief of Staff, at [Redacted].
            Sincerely,
           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]           
           
            
Catherine M. Trujillo,
Acting Deputy Inspector General.
                                 ______
                                 
                          Submitted Questions
Response from Thomas Melito, Director, International Affairs and Trade, 
        U.S. Government Accountability Office
Question Submitted by Hon. K. Michael Conaway, a Representative in 
        Congress from Texas
    Question. In which countries do we operate food aid programs? 
Please indicate the modalities used in each country.
    Answer. In Fiscal Year 2014, the U.S. government operated food 
assistance programs in more than 50 countries.\1\ The chart below 
details the modality or modalities provided in each country, and was 
developed by GAO using Fiscal Year 2014 data provided by the U.S. 
Agency for International Development (USAID), including information on 
in-kind food aid programs provided through Title II Emergency and 
Development Assistance, Food for Progress, the Bill Emerson 
Humanitarian Trust, and the McGovern-Dole International Food for 
Education and Childhood Nutrition program; and cash-based food 
assistance funded through the Emergency Food Security Program under the 
International Disaster Assistance account.\2\
---------------------------------------------------------------------------
    \1\ In 2014, three awards-the East Africa regional award, Syria 
regional award, and Central American Drought award-were regional in 
nature, covering multiple jurisdictions. Individual country-level 
modality data for regional awards were not provided to GAO, so these 
programs are represented on a regional basis in the figure on the 
following page.
    \2\ Fiscal year 2014 in-kind food aid program data are preliminary.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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