Foreign Assistance: Implementing Disaster Recovery Assistance in 
Latin America (21-MAR-01, GAO-01-541T). 			 
								 
This testimony discusses GAO's work on the U.S. government's	 
disaster recovery and reconstruction program for		 
hurricane-affected countries. With some variance by country, the 
Agency for International Development (AID) and the other U.S.	 
departments and agencies are using the disaster recovery	 
assistance to bring about economic recovery, improve public	 
health and access to education, provide permanent housing for	 
displaced families, and improve disaster mitigation and 	 
preparedness. To achieve these broad objectives, AID is funding  
infrastructure construction and repair, technical assistance and 
training, loans for farmers and small businesses, and some	 
commodities. After initial start-up problems, the U.S. disaster  
recovery and reconstruction program is proceeding, and most	 
activities are scheduled for completion on or before December 31,
2001, as AID and congressional staff had informally agreed. To	 
help ensure that funds are spent for intended purposes, AID has  
channeled much of the disaster recovery assistance funding	 
through cooperating partners with proven track records, 	 
contracted with management and financial services firms to handle
disbursement to vulnerable partners, and hired contractors to	 
monitor project quality. The bottom line is that AID did not have
the mechanisms to quickly design and implement a large-scale	 
infrastructure program with relatively short-range deadlines. The
disaster recovery and reconstruction projects GAO examined are	 
neither short-term emergency relief nor long-term development	 
assistance.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-541T					        
    ACCNO:   164632						        
    TITLE:   Foreign Assistance: Implementing Disaster Recovery       
             Assistance in Latin America                                      
     DATE:   03/21/2001 
  SUBJECT:   Disaster relief aid				 
	     Federal aid to foreign countries			 
	     Foreign aid programs				 
	     International relations				 
	     AID Disaster Recovery and Reconstruction		 
	     Program						                                                     
	     Honduras						 
	     Hurricane Georges					 
	     Hurricane Mitch					 
	     Nicaragua						 

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GAO-01-541T

FOREIGN ASSISTANCE Implementing Disaster Recovery Assistance in Latin
America Statement of Jess T. Ford, Director, International Affairs and Trade

United States General Accounting Office GAO Testimony Before the
Subcommittee on Foreign Operations, Export Financing, and Related Programs,
Committee on Appropriations, House of Representatives

For Release on Delivery Expected at 10: 00 a. m. Wednesday, March 21, 2001
GAO- 01- 541T

Mr. Chairman and Members of the Subcommittee: I am pleased to be here today
to discuss our work on the U. S. government's disaster recovery and
reconstruction program for hurricane- affected countries. In the fall of
1998, Hurricanes Mitch and Georges struck Central America and the Caribbean.
The

storms left thousands dead and many more homeless; damages were estimated at
more than $10 billion. The international donor community pledged $9 billion
to assist in the recovery and reconstruction of Mitch- affected countries in
Central America. In May 1999, the Congress passed emergency supplemental
legislation that, among other things, provided $621 million for a disaster
recovery and reconstruction fund for the affected countries as well as
reimbursement funds to U. S. agencies for costs incurred during the
immediate relief phase. 1 The U. S. Agency for International Development
(USAID) and numerous other U. S. departments and agencies are using this
funding to implement recovery and reconstruction activities.

The emergency supplemental legislation required GAO to monitor the
assistance provided. To date, we have focused most of our effort on
determining what programs and projects are being funded by USAID and the
other U. S. departments and agencies, the objectives and purposes of these
activities, and how USAID is ensuring that the disaster recovery funds are
spent for intended purposes. We also examined how USAID has coordinated with
other international donors and the other U. S. agencies; what USAID has
done, as directed by the legislation, to help the affected countries develop
an institutional capability to resist corruption; and what USAID has done to
mitigate the

effects of future disasters. I should also note that the USAID Inspector
General is conducting audits of USAID's disaster recovery programs. We have
coordinated closely with the Inspector General's office, in particular, its
Regional Inspector General's Office in El Salvador. In general, the USAID
Inspector General has focused its oversight efforts on the accounting and
financial records, while we have emphasized whether the disaster recovery
assistance funds are achieving their intended purposes.

My statement today will cover three main points related to these issues:

progress to date as a result of the disaster recovery program,

oversight measures put in place to ensure that funds are spent for their
intended purposes, and

our observations on some of the challenges faced by USAID in implementing
largescale disaster recovery and reconstruction assistance programs such as
this.

To address these matters, we have made more than 20 field trips to some of
the most remote parts of the affected countries but focused on the two
receiving the most assistance- Honduras ($ 293.1 million) and Nicaragua ($
94.1 million). On our trips, we

1 Public Law 106- 31, May 21, 1999.

2 met and talked with many of the people most affected by the hurricane and
monitored

the progress of numerous USAID projects. We plan to issue a final report to
the Congress in July 2002 after USAID has expended all or most of its
disaster recovery and reconstruction funds.

SUMMARY The disaster recovery assistance program has made progress. With
some variance by country, USAID and the other U. S. departments and agencies
are using the disaster recovery assistance to bring about economic recovery,
improve public health and access to education, provide permanent housing for
displaced families, and improve disaster mitigation and preparedness. To
achieve these broad objectives, USAID is funding infrastructure construction
and repair, technical assistance and training, loans for farmers and small
businesses, and some commodities. Other U. S. departments and agencies are
addressing these objectives through a variety of programs and activities.
For example, the U. S. Geological Survey is providing assistance in mapping
and hydrology and the U. S. Department of Agriculture is providing
assistance in watershed management and food safety.

After initial start- up problems, the U. S. disaster recovery and
reconstruction program is proceeding, and most activities are scheduled for
completion on or before December 31, 2001, as USAID and congressional staff
had informally agreed. In its most recent quarterly report for the period
ending December 31, 2000, USAID reported that it and the other U. S.
agencies had spent about $253 million, or 41 percent of the disaster
recovery funding. (See figure 1.) Figure 1: USAID's Expenditures for Three
Largest Recipient Countries and Other

Affected Countries Source: USAID Source: USAID 0 25 50 75 100 125 150 175
200 225 250 275 300 Millions of dollars Other

Dominican Republic Nicaragua

Honduras Expenditures as of 12/ 31/ 00 Funds remaining as of 12/ 31/ 00

Other includes Colombia, Costa Rica, El Salvador, Guatemala, Haiti, and
regional programs As of December 31, 2000, $253 million

(41 percent) of the recovery funds had been expended.

3 At the present time, it appears that USAID will complete most of its
program by the end

of the year with the likely exception of a municipal water and sanitation
program in Honduras. This program started later than most of the rest in
Honduras because (1) some of the initial designs were found to be flawed
following a review by the U. S. Army Corps of Engineers and (2) numerous
small projects were combined to attract U. S. companies. Some of these
projects are considered critical components of larger ongoing or planned
water and sanitation projects, and their delay would affect the outcome of
the overall program. To help ensure that funds are spent for intended
purposes, USAID has channeled much of the disaster recovery assistance
funding through cooperating partners with proven track records, contracted
with management and financial services firms to handle

disbursements to vulnerable partners (including host governments), and hired
contractors to monitor project quality. In addition, the USAID Inspector
General is conducting concurrent and regular audits and provided fraud
awareness training for cooperating partners. Although some activities have
not gone as smoothly as planned, the missions have responded to concerns as
they arose. For example,

While visiting northern Honduras in October 2000, we traveled on a road
being repaired with USAID funds that had not been compacted properly and was
extremely difficult to navigate. The U. S. engineer overseeing the road
repairs took action to ensure its proper construction by our next trip in
February 2001. Also, responding to

concerns raised in an independent evaluation and by GAO and the USAID
Inspector General, USAID suspended $500,000 in agricultural loans pending a
firm commitment by the implementing organization to improve its management
practices. In January 2001, the Honduran Ministry of Finance signed a
memorandum of understanding with the organization outlining these reforms
and USAID expects to release the funds this month.

In Nicaragua, some organizations USAID used for infrastructure projects did
not have the required technical expertise. For example, a private voluntary
organization responsible for repairing certain dirt and gravel roads hired
engineers, at USAID's urging, after the USAID reconstruction coordinator,
GAO staff, and others determined that some of the repairs were inadequate.
We also observed that a

rehabilitated health post and doctor's residence had been vacant for several
months. Following our visit, the Ministry of Health assigned a doctor and we
found the clinic operating during a subsequent field trip.

This brings me to the final topic I would like to discuss today- some
observations about the challenges USAID faced as it planned and implemented
this large- scale program. The bottom line is that USAID did not have the
mechanisms to quickly design and implement a large- scale infrastructure
program with relatively short- range deadlines. The disaster recovery and
reconstruction projects we examined are neither short- term emergency relief
nor long- term development assistance- more typical USAID programs. As a
result, USAID staff faced numerous challenges in getting the program off the
ground. For example, before Hurricane Mitch, the Honduras mission was
managing an annual development program of about $23 million. In addition to
managing the immediate relief

4 effort and implementing an initial reconstruction program with
reprogrammed funds, the

mission found itself with the task of planning and implementing a program
more than ten times its previous year's program. Inadequate levels of staff
and contractor support, efforts to help ensure that financial controls and
oversight measures were in place, the involvement of numerous other U. S.
government agencies, and attempts to ensure competition among contractors
and grantees affected the pace of implementation.

These factors should be considered in future disaster recovery and
reconstruction efforts. However, USAID has initiated an agency- wide review
of its disaster recovery efforts with emphasis on improving its planning for
and delivery of disaster recovery assistance. Therefore, we are not making
any recommendations at this time.

BACKGROUND In late October and early November 1998, Hurricane Mitch struck
Central America, dumping more than six feet of rain in less than a week,
mostly over Honduras. The heavy rainfall produced flooding and landslides
that killed thousands of people; left tens of thousands homeless; and
devastated infrastructure, agriculture, and local economies. In addition, in
September 1998, Hurricane Georges hit several eastern Caribbean islands

and the island of Hispaniola, which comprises the Dominican Republic and
Haiti. Hurricane Georges also caused the deaths of hundreds of people and
severely damaged infrastructure, crops, and businesses. U. S. relief efforts
began immediately; the Congress and the administration recognized the

need for longer- term assistance for recovery and reconstruction. In March
1999, President Clinton visited Central America and promised to help these
countries rebuild their economies and social sectors. At the same time,
USAID began developing a recovery plan for each hurricane- affected country,
which outlined USAID's funding estimates and proposed programs. In May 1999,
the Congress passed and the President signed an emergency supplemental
appropriation that provided, among other things, $621 million for the
countries affected by Hurricanes Mitch and Georges. Prior to obligating the
funds, USAID was required to provide formal notifications to the Congress.
USAID began submitting its notifications in late May, and most funds were
available in July 1999. USAID is the primary agency responsible for carrying
out the U. S. disaster recovery

program. Of the $621 million authorized, USAID is directly responsible for
about $587 million, including about $62 million in agreements with other U.
S. departments and agencies, such as the U. S. Department of Agriculture and
U. S. Geological Survey. The remaining $34 million represents direct
transfers from USAID to other U. S. agencies, such as the Departments of
Housing and Urban Development and State. Honduras, which received the brunt
of Hurricane Mitch, was allocated $293.1 million and Nicaragua was allocated
$94.1 million.

USAID's overall objectives are to help bring about economic recovery,
restore and improve basic services, and mitigate the effects of future
natural disasters. Each

5 country's program varies based on country conditions and the USAID
mission's

approach. However, the funds are generally allocated for

repairing or rebuilding (1) the infrastructure needed for reactivating
economies (for example, roads and bridges), (2) public health infrastructure
(for example, potable water systems, sewage and drainage systems, and health
clinics), (3) housing, and (4) schools; providing loans, credits, and
technical assistance for small and medium- sized farms

and businesses;

strengthening civil defense and early warning/ prevention efforts;

assisting disaster mitigation efforts such as watershed management; and

strengthening accountability. DISASTER RECOVERY PROGRAM ADDRESSES INTENDED
PURPOSES USAID experienced considerable challenges in initiating this large-
scale disaster

recovery program- I will discuss these in more detail in a later section of
my testimony. USAID essentially had to reconcile the competing interests of
quick implementation with ensuring that appropriate oversight and financial
controls were in place and procurement actions were open and transparent.
Despite these initial concerns, USAID and other U. S. departments and
agencies are

implementing programs and serving the intended beneficiaries, as we have
observed from our numerous visits to the field. We have seen signs of
progress in all sectors, including repairs and construction of roads and
bridges, water and sewer systems, housing, schools, and health clinics;
loans for farms and businesses; and technical

assistance, training, and equipment for agricultural and disaster mitigation
programs. For example, in Honduras, as of the end of February 2001, 625
kilometers (390 miles) of roads and 1,231 linear feet of bridges had been
rehabilitated. Also in Honduras, USAID reports that its cooperating partners
completed 2,072 new homes for hurricane victims and another 2,825 homes are
under construction. The USAID mission in Nicaragua

reported that, as of the end of 2000, more than 26,000 Nicaraguans
participated in cash and food- for- work programs to repair about 340
kilometers (210 miles) of roads and improve another 839 kilometers (520
miles). USAID's cooperating partners in Nicaragua also built or repaired
about 1,034 wells and 3,800 latrines.

Now I would like to discuss some examples of progress being made in Honduras
and Nicaragua.

6 Honduras In Honduras, USAID had spent about $92 million or 31 percent of
its allocated amount as of December 31, 2000. We have made seven trips to
Honduras and noted the following

examples of progress based on our field work: USAID financed the repair of
625 kilometers (390 miles) of secondary roads and 1,231 meters of bridges as
of February 28, 2001. USAID is also financing 15 kilometers (9 miles) of
cobblestone roads. We have traveled a good portion of these roads both
before and after the repairs and observed the improvements. USAID plans to
repair 1,250 kilometers (775 miles) of roads and 5,220 meters of bridges.
The total bridge repair program consists of 106 bridges and 145 low- level
crossings. USAID had originally targeted 2,000 kilometers of road repairs
but revised it due to higher than estimated unit costs and the increase in
bridge work, which was increased from 2,000 meters. When completed, this
program is expected to connect two million people in 375 communities in six
departments with secondary cities and commercial centers. (See figure 2.)

Figure 2: Cobblestone Road Project in Pespire, Honduras Source: GAO USAID's
municipal water and sanitation program managed by the Honduran Social
Investment Fund is behind schedule but some progress is evident. As of
December 31, 2000, 36 of 80 planned projects were underway, and a total of
$41 million in host country contracts had been signed, representing 53
percent of the planned program. We recently observed projects where water
tanks and connections are being built and

sewage lines and treatment lagoons are being constructed. In addition,
USAID, through the Honduran national water authority, reconstructed 587
rural water systems (of 1,469 targeted) and 9,241 latrines (20,000 are
planned). We observed several of the rural water supply systems being
repaired and talked with beneficiaries about their plans for operations and
maintenance. (See figure 3.)

7 Figure 3: Water and Sanitation Projects Near Choluteca, Honduras

Source: GAO As of March 15, 2001, according to mission estimates, USAID's
cooperating partners completed 2,072 houses, and another 2,825 were under
construction. USAID had originally planned to complete about 5,000 houses,
but now estimates that it may complete 5,100 or more. Most temporary
shelters have been dismantled as families have moved into permanent housing.
(See figure 4.) We observed many of these houses in different areas of the
country and talked with the residents of completed units. In many cases, the
houses are better than the ones they lost to the hurricane.

Figure 4: Temporary Shelters in El Progresso Compared to Housing Completed
With Disaster Recovery Funds in El Pataste, Honduras Source: GAO

8

As of December 31, 2000, USAID had financed more than $5 million in 781
agricultural loans for small and medium- sized farms, and its
microenterprise program issued 57,637 loans. We met with some of the
beneficiaries- from a shrimp farmer in

Choluteca to micro- entrepreneurs selling juice and snacks in northern
Honduras- to discuss the impact of the hurricane on their livelihood, how
the USAID- financed loans have helped them, and how they plan to repay the
loans. The recipients seem to understand the payment terms, and many with
whom we spoke hope to borrow more as they expand their businesses.

The U. S. Geological Survey has installed gauges at key points in rivers to
collect and record information on water depths over time. (See figure 5.)
This information is linked by satellite to the Internet and has already come
into use- the mayor of Choluteca used it to evacuate parts of the city
during heavy rains in 1999.

Figure 5: River Gauge Near Choluteca, Honduras Source: GAO We observed
additional ongoing and completed projects, including agricultural

technical assistance programs, assistance for milk collection centers,
construction of primary school classrooms (see figure 6) and vocational
centers, distance learning pilots for junior- high school students, and
community disaster preparedness programs.

9 Figure 6: School Under Repair Near La Ceiba, Honduras Source: GAO
Nicaragua We have made seven trips to Nicaragua, where the program has less
emphasis on heavy

infrastructure than in Honduras but similarly targets the economic and
social needs of hurricane- affected populations, mostly in the northern part
of the country. As of December 31, 2000, USAID had spent almost $51 million
in Nicaragua- 54 percent its planned amount. We noted the following examples
of progress based on our fieldwork:

USAID, through its cooperating partners, plans to rehabilitate or improve
1,375 kilometers (850 miles) of farm- to- market roads using local labor
through cashfor- work and food- for- work programs. As of December 31, 2000,
340 kilometers (210 miles) were rehabilitated and another 839 kilometers
(520 miles) had been improved. USAID estimates that 31,000 families in 700
communities have benefited

from the increased access to markets. As in Honduras, we traveled
extensively over many of these roads and observed the improvements made.
More than 26,000 Nicaraguans have participated in the cash and food- for-
work programs. These programs primarily rehabilitate roads but also build or
repair retaining walls, dikes, culverts, and irrigation diversion dams. (See
figure 7.) Although some of these road

activities encountered problems in the beginning, as I will discuss in the
next section, these programs are making progress, and the quality of repairs
has improved.

10 Figure 7: Construction of Retaining Walls and Culverts Near Jinotega,
Nicaragua

Source: GAO In the public health sector, USAID plans to build or repair
2,550 water wells, 5,640 latrines, 28 health centers, and 32 rural health
posts as well as provide job training and health education to families in
remote areas affected by Hurricane Mitch. As of December 31, 2000, USAID,
through its partners, had built or repaired 1,034 wells and 3,800 latrines.
USAID- funded drilling rigs had also drilled 87 deep wells. USAID expects to
exceed its original target of 160 drilled wells by as many as 100. Also,
three health centers were nearly complete and land for three more has been
secured, seven rural health posts had been built, and the Matagalpa hospital
was rehabilitated. We observed numerous repaired wells, latrines, and health
centers and posts. (See figure 8.)

Figure 8: Well Sites in Rural Nicaragua Source: GAO

11

USAID is also providing agricultural assistance. For example, two private
voluntary organizations sponsored programs that provided 590 rural
residents, mostly women, with farm animals and training. Another
organization is helping to improve crop production by providing assistance
in using organic fertilizers and pesticides, thereby reducing the inputs
needed to produce a crop.

We also observed many USAID efforts to repair and equip primary school
classrooms and to improve disaster mitigation, such as stabilizing stream
channels and formulating community disaster preparedness plans. USAID
Encounters Problems With Some Projects In this large and complex program,
with its heavy emphasis on infrastructure repair, not

all activities have gone as smoothly as planned. For example,

In Honduras, the municipal water and sanitation program managed by the
Social Investment Fund and implemented by U. S. contractors is behind
schedule. The program did not get started until July 2000 because (1) some
of the designs submitted by the municipalities had to be revised after the
U. S. Army Corps of Engineers reviewed them and (2) USAID decided to combine
numerous small projects into packages large enough to attract U. S.
companies. Although some of these projects are considered “stand-
alone” and not essential components of other projects, some are
critical components of larger projects. If the projects that are considered
critical

to other components are delayed, this will have significant impacts on the
program and could result in wasted efforts. For example, we observed the
construction of treatment lagoons in Choluteca that can only be used after a
pumping station is constructed. (See figure 9.)

Figure 9: Construction of Sewage Treatment Lagoons Near Choluteca, Honduras
Source: GAO Also in Honduras, some concerns remain about an ambitious
resettlement project near Choluteca- Limon de la Cerca- a housing
subdivision designed for 2,300 lots.

12 Twelve nongovernmental organizations representing a variety of
international

donors built 1,126 houses for families who lost their homes in Mitch floods.
USAID funded a temporary health clinic and a vocational training center.
USAID is also funding a potable water and sewer system for the planned
community; the residents have a temporary water supply and latrines in the
meantime. However, because such

services are not complete or are inadequate to support the community, many
houses remain unoccupied and some families have moved elsewhere. Crime is
increasing and some residents are stealing materials from unoccupied houses.
According to USAID officials, these problems stem partly from the rush of
donors to finish houses and the fact that community leadership has been
divided among the different areas developed by nongovernmental
organizations, with the unintended result of setting up separate
communities. (See figure 10.) USAID is optimistic that the community will
become more viable as more families move in following completion of the
water system and the rest of the houses. However, USAID officials also noted
that experienced developers are needed for these large sites to help ensure
that attention is paid to overall infrastructure and services. Figure 10:
Houses in Limon de la Cerca, Honduras

Source: GAO In Nicaragua, USAID hired a U. S. firm to oversee 23 municipal
infrastructure projects totaling $3.6 million that were to be implemented by
the government's Emergency Social Investment Fund. However, only 3 projects
have been completed, and USAID has cancelled 12 of the remaining projects
due to design problems and the need to finish the program by December 2001.
USAID will reprogram the funds, totaling about $1.5 million, for other
projects. In one of the initial projects- a road paving activity in
Tipitapa- the local contractor notified USAID that the road design had been
changed to extend the paving to more sections of the city, resulting in a
thinner layer of asphalt than called for by the project's specifications.
USAID immediately suspended the contract. The project was subsequently
redesigned using different

13 paving materials and USAID is monitoring it to ensure that the project
will be

completed according to the new specifications. OVERSIGHT IDENTIFIES PROBLEMS
AND USAID RESPONDS Since the disaster recovery assistance program began,
USAID has undertaken a number

of measures to guard against potential misuse of assistance and address
problems as projects are underway. In addition, oversight and monitoring of
the assistance by us and the USAID Inspector General has resulted in
instances of problems being identified and addressed by USAID. USAID
Establishes Additional Oversight Measures Due to widespread concerns that
such a large program with a 30- month timeframe could

be susceptible to misuse or corruption, USAID missions were cautious at the
outset of the program. In addition to its regular program and financial
controls, USAID took some extra oversight measures.

In Honduras, the major infrastructure construction programs- totaling about
$135 million- are implemented primarily by the Honduran Social Investment
Fund, a government agency established to ease the impact of structural
adjustment policies through employment generation and social programs. To
protect the U. S. investment from potential misuse, the mission established
within the Fund a separate oversight

unit for a $50 million road and bridge program in Honduras. The unit is
headed by a U. S. project manager with a U. S. engineer and local support
staff. For both the road and water and sanitation programs, the mission
contracted with financial services firms to handle disbursements to the Fund
following approvals by USAID and the

oversight unit. USAID also relies on the U. S. Army Corps of Engineers to
provide technical oversight of the water and sanitation program. For the
school program in Honduras, USAID only reimburses the Fund after units are
completed and have been inspected by USAID and its oversight contractors.
Finally, in many instances the mission hired U. S. management services firms
and private voluntary organizations to oversee other activities implemented
by local entities.

USAID's program in Nicaragua is mostly implemented by U. S. and
international voluntary organizations that have a proven track record with
the mission and local implementing organizations and whose ongoing programs
could be amended. For its only program with the Nicaraguan government- a
$3.6 million municipal

infrastructure program implemented by the Emergency Social Investment Fund-
USAID hired a U. S. management services firm to provide oversight and
technical assistance. USAID also relied on the U. S. Army Corps of Engineers
to review municipal infrastructure designs and make recommendations
accordingly.

In all its missions, USAID hired additional personal services contractors to
oversee the programs and serve as technical officers. In Nicaragua, USAID
hired a reconstruction coordinator; in Honduras, the program office and
technical officers throughout the mission share responsibility for
oversight.

14 Further oversight was provided by USAID's Office of the Inspector
General, which was

allocated an additional $1.5 million to provide audit coverage of the
disaster recovery program. Accordingly, the Regional Inspector General's
Office in El Salvador has contracted with the Defense Contract Audit Agency
and local affiliates of international accounting firms to conduct concurrent
audits of vulnerable programs and regular audits of many other programs.
Also, the USAID missions are requiring some funding

recipients to contract for their own audits. USAID Response to Project
Concerns Through the increased oversight of this program several concerns
were identified as

project implementation was under way. In many cases, USAID took action as
problems arose, whether they were identified by USAID's own staff and
contractors or Inspector General or GAO audits. I will discuss some of these
issues for the two countries we are focused on- Honduras and Nicaragua.

Honduras During a trip to northern Honduras in October 2000, we traveled a
road that had been repaired with USAID funds that had been poorly compacted.
Recent rains had turned the road to mud and it was nearly impossible to
navigate. This road is an important access route for transporting African
palm oil to the coast for export and for local commerce. The U. S. engineer
responsible for technical oversight agreed with our concerns and took prompt
action to ensure the road was repaired properly. On a subsequent visit, we
noted that the road was in excellent condition.

Our visits to El Pataste in northern Honduras in July 2000 contributed to
increased pressure by the USAID mission that partners specify how water,
sanitation, roads, schools, and other key community services will be
provided for housing projects. During this visit, we observed a housing
project with well- constructed houses but no

firm plans for potable water, despite a contractual obligation to ensure
that key services are incorporated into housing communities. USAID
eventually was successful in having the implementing organization negotiate
a solution for the provision of potable water. USAID also developed a matrix
for each housing project that specifies how water and other infrastructure
are to be provided as well as proof that an environmental assessment had
been completed, an additional USIAD requirement.

USAID provided $2.5 million to an agricultural lending cooperative for loans
for small and medium- size farms despite a record of concerns about its
management problems and financial viability. According to USAID, this
organization was the only one available providing access to credit for these
smaller producers. USAID hired a management services firm to handle loan
disbursements and provide technical assistance for implementing management
reforms, but the problems persisted. Based partly on GAO's scrutiny, USAID
pressured the organization's Board of Directors to accept major
restructuring of its organizational, management, and financial structure.

15 In January 2001, the Honduran Minister of Finance signed a memorandum of

understanding with the lending organization outlining these changes and the
likely consequences if the reforms are not made. USAID had suspended the
remaining $500,000 of the $2.5 million loan fund pending the signing of the
memorandum; these funds will be released this month.

A USAID Inspector General's audit of questionable loans and GAO's questions
forced increased accountability over a supplemental loan fund (about $1.5
million) implemented by a local organization for micro- entrepreneurs
affected by Hurricane Mitch. In addition, some loans that did not meet the
criteria for the supplemental loan fund were removed and placed in a
separate fund.

Nicaragua A GAO team visited numerous sites where an international private
voluntary organization was implementing cash- for- work rural road
rehabilitation projects. We pointed out several deficiencies in the quality
of the work, including (1) roads not properly crowned to prevent standing
water, (2) ditches not adequately dug to facilitate drainage of water, and
(3) roadbed materials not suitable for withstanding traffic and weather.
Based on our comments, as well as input from the U. S. Army Corps of
Engineers and others, the private voluntary organization hired engineers to

oversee road activities. We observed a noticeable improvement in this
organization's road projects on subsequent visits. (See figure 11.)

Figure 11: Rural Road Near Jinotega, Nicaragua Source: GAO In October 2000,
GAO visited a rural health post where a private voluntary

organization constructed a residence for medical personnel and rehabilitated
a clinic. USAID and project staff were told that the work had been
completed, the Ministry of Health had assigned medical personnel, and the
post was in operation. However, when we arrived the facility was vacant and
evidently had been so for months. We questioned whether USAID should be
involved in such a project, given the Ministry's

16 lack of support. In January 2001, we returned to the clinic unannounced
and found

that a doctor was present and living at the residence and the clinic was
operating. He had been assigned following our earlier visit. (See figure
12.)

Figure 12: Rural Health Facility Near Matagalpa, Nicaragua Source: GAO OTHER
ISSUES As I noted earlier in my statement, we also examined USAID's efforts
to coordinate with other donors and U. S. agencies, help the affected
countries' audit authorities, and mitigate for future disasters. Overall,
USAID has done an adequate job of coordinating its assistance to minimize
any duplication or overlap with other donors and U. S. agencies, but it has
made limited progress in strengthening audit authorities or in mitigating
against future disasters due, in large part, to a number of variables
outside USAID's control.

USAID has coordinated with other bilateral and multilateral donors through
formal consultative group meetings and informal contacts among mission staff
and other donors. In contrast to many other donors, USAID is concentrating
its activities in rural areas and smaller cities making it unlikely USAID
will duplicate other donor efforts. Also, 13 other U. S. departments and
agencies are implementing about $96 million 2 in

disaster recovery activities. After some initial delays, USAID worked with
these agencies to help plan their efforts. We found no evidence that USAID
activities duplicated those of other international donors or the other U. S.
departments and agencies.

USAID is attempting to strengthen the capacity of host governments to resist
corruption, but cannot point to much progress. For example,

2 This amount does not include funds transferred by USAID through
Participating Agency Service Agreements, which are included in USAID's
overall totals.

17

USAID provided $1.5 million to the Controller General's Office in Honduras
to continue an effort initiated before Hurricane Mitch to strengthen its
capacity to audit USAID activities. In contrast, a USAID program with the
Controller General's Office in Nicaragua

(funded with regular funds) will not be extended because the Nicaraguan
government created a panel of five appointees to oversee the Controller
General, thereby diluting the office's independence. Similarly, according to
USAID, it terminated its program with the Dominican Republic's Controller
General because the Controller is not independent of executive branch
interference. USAID also plans to contribute $3 million and $1 million for
Honduras and Nicaragua,

respectively, to the Inter- American Development Bank to institute donor
assistance oversight units. However, these units have not been implemented
due to disagreements over proposal terms. USAID and the other U. S.
government agencies are helping the hurricane- affected

countries mitigate the effect of future natural disasters. Some of these
activities support equipment and training for central civil defense
institutions and community disaster preparedness programs. Other activities
are aimed at improving watershed and agricultural management practices and
encouraging families to relocate to less vulnerable areas. U. S. disaster
mitigation efforts are constrained by the lack of suitable land for housing
and infrastructure, decades of deforestation and other inappropriate
environmental practices, and the lack of host government resources to
sustain mitigation efforts.

OBSERVATIONS ON DISASTER RECOVERY EFFORTS As I noted earlier, USAID faced-
and continues to face- many challenges in implementing a large- scale
recovery program, within a 30- month period, that is neither immediate
relief nor long- term development. USAID essentially had to balance the
competing demands for quick disbursement versus the need to build in extra
accountability measures and the desire, in some cases, to attract U. S.
business participation. In addition, the missions were essentially dealing
with three disaster

programs almost simultaneously- providing immediate emergency relief,
implementing the initial recovery phase funded through reprogrammed and
other USAID emergency funds, and planning and designing the large- scale
supplemental disaster recovery assistance. These factors contributed to
start- up time and should be considered when planning and implementing
future disaster recovery and reconstruction programs.

The bottom line is that USAID did not have the mechanisms to quickly design
and implement a large- scale infrastructure program with relatively short-
range deadlines. For example,

The disaster recovery program includes sectors in which the USAID missions
in Honduras and Nicaragua had little or no expertise, such as construction,

18 infrastructure repair, watershed management, and disaster mitigation
efforts. The

USAID missions obtained this expertise through contractors and other U. S.
agencies.

In fiscal year 1998, the Honduras and Nicaragua missions were managing
annual programs of about $23 million and $30 million, respectively. The
Honduras mission, in particular, had been considerably reduced in size and
it took many months- in a few cases more than a year- to fill the positions
needed to oversee the disaster recovery program. In particular, the Honduras
mission did not have a permanent contract officer- it had been sharing one
with the Nicaragua mission- until October 1999, 1 year after Hurricane
Mitch. Other missions also shared contract officers. In some cases, the
reconstruction program included sectors in which the missions were not
active. For example, the Honduras mission had essentially phased out its
agricultural program before Hurricane Mitch. USAID direct- hires in general,
and

contract officers in particular, have declined in recent years and were not
readily available to manage large- scale emergency programs. This problem
was compounded by some USAID direct hire rotations during the summer of 1999
following passage of the disaster recovery funding. Although USAID's
headquarters office attempted to ease the burden by providing temporary
staff in the hurricaneaffected countries, the missions lacked needed
continuity.

Acquiring personal services and institutional contractors with the requisite
language and technical skills often took 6 months to a year. The time
involved included gaining the respective embassy's approval, advertising the
positions, and obtaining security clearances for new contractors.

Although USAID missions had the authority to waive full and open competition
for awarding contracts and grants, it was used sparingly. Using sole source
awards would have speeded up the award process, but it likely would have
precluded U. S. firms from being awarded contracts. The Honduran mission,
for example, redesigned much of its municipal water and sanitation program
to allow U. S. firms to compete, resulting in a later start date. The
mission used the waiver authority to bypass advertising normally required in
the Commerce Business Daily, which saved 60 days in awarding several
contracts.

The accountability measures discussed above also had to be established prior
to program implementation. For example, for its host country contracting
programs, the USAID mission in Honduras had to advertise for and select the
U. S. engineering and project management staff that oversaw the technical
aspects and the third- party accounting firm that handled disbursements.
Thirteen additional U. S. departments and agencies received disaster
recovery funds,

and eight of these were linked with USAID's program. Many of these agencies
had little or no prior experience in working overseas. At the outset, USAID
staff spent considerable time incorporating these agencies into USAID's
development approach. In addition, the agencies' administrative
requirements, such as office space, residences, vehicles, equipment, and
supplies had to be coordinated with the respective U. S. embassy's overall
administrative services account. Officials from the

19 other U. S. agencies expressed concerns about the time it took to
incorporate a

relevant program into USAID's framework and the administrative constraints
of operating in an overseas environment. Nevertheless, USAID officials
generally agreed that many agencies added value to the program once the
initial start- up problems were resolved. In particular, USAID officials
most often cited the four agencies with scientific, technical, and
engineering expertise not available at USAID- the U. S. Geological Survey,
the U. S. Army Corps of Engineers, the U. S. Department of Agriculture, and
the National Oceanic and Atmospheric Administration.

USAID officials in the overseas missions and in USAID's Washington, D. C.,
headquarters generally agreed with our overall observations. They emphasized
that the lead role which USAID was expected to perform in planning and
implementing the disaster recovery program was a significant challenge.
According to these USAID officials, USAID's Latin America and the Caribbean
Bureau

produced a "lessons learned" analysis several months after the disaster
recovery program's start- up. It looked at the principal steps in the
disaster recovery program process and offered observations on systemic and
procedural changes needed for a

similar response in the future. This has led to an ongoing, USAID- wide
review of its experiences with international emergencies. A series of
recommendations is under consideration, including options for funding, staff
mobilization, contracting and the use of special authorities, and
relationships with other U. S. government agencies and the private sector.

Therefore, we are not making any recommendations at this time. We will
continue to stay abreast of USAID's efforts to improve its planning for and
delivery of disaster recovery assistance.

- - - - - Mr. Chairman, this concludes my statement. I will be happy to
address any questions the Subcommittee may have.

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