Former Soviet Union: An Update on Coordination of U.S. Assistance and
Economic Cooperation Programs (Letter Report, 12/15/95, GAO/NSIAD-96-16).

GAO examined U.S. bilateral programs designed to help the former Soviet
Union (FSU) implement political and economic reforms, focusing on: (1)
the Department of State Coordinator's role in and authority over
bilateral FSU programs; and (2) interagency cooperation in implementing
Freedom Support Act programs.

GAO found that: (1) the FSU Coordinator's role has been expanded to
include oversight of all U.S.-FSU bilateral programs and his authority
to review budgets and direct the interagency program development and
implementation has been strengthened; (2) the Coordinator has not
effectively exercised his authority to oversee the FSU anticrime
program, because of disagreements on an integrated approach to anticrime
assistance in the FSU; (3) interagency cooperation in implementing
Freedom Support Act programs has improved because of variations in the
types of transfer agreements; and (4) the Agency for International
Development's control over program content, funding, and project
implementation has reduced disagreements over how program funds are used
and accounted for.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-16
     TITLE:  Former Soviet Union: An Update on Coordination of U.S. 
             Assistance and Economic Cooperation Programs
      DATE:  12/15/95
   SUBJECT:  Federal aid to foreign countries
             Foreign economic assistance
             International cooperation
             Interagency relations
             International agreements
             Developing countries
             International economic relations
             Economic development
             Technical assistance
IDENTIFIER:  Soviet Union
             DOD Cooperative Threat Reduction Program
             Freedom Support Act Program
             Dept. of State FSU Anticrime Assistance Program
             
**************************************************************************
* This file contains an ASCII representation of the text of a GAO        *
* report.  Delineations within the text indicating chapter titles,       *
* headings, and bullets are preserved.  Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are           *
* identified by double and single lines.  The numbers on the right end   *
* of these lines indicate the position of each of the subsections in the *
* document outline.  These numbers do NOT correspond with the page       *
* numbers of the printed product.                                        *
*                                                                        *
* No attempt has been made to display graphic images, although figure    *
* captions are reproduced. Tables are included, but may not resemble     *
* those in the printed version.                                          *
*                                                                        *
* A printed copy of this report may be obtained from the GAO Document    *
* Distribution Facility by calling (202) 512-6000, by faxing your        *
* request to (301) 258-4066, or by writing to P.O. Box 6015,             *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time.                                    *
**************************************************************************


Cover
================================================================ COVER


Report to Congressional Committees

December 1995

FORMER SOVIET UNION - AN UPDATE ON
COORDINATION OF U.S.  ASSISTANCE
AND ECONOMIC COOPERATION PROGRAMS

GAO/NSIAD-96-16

Former Soviet Union

(711125)


Abbreviations
=============================================================== ABBREV

  CDC - Centers for Disease Control
  FSU - former Soviet Union
  INL - International Narcotics and Law Enforcement Affairs
  USAID - U.S.  Agency for International Development
  PASA - Participating Agency Service Agreement

Letter
=============================================================== LETTER


B-270020

December 15, 1995

Congressional Committees

In February 1995, we reported that the executive branch lacked an
effective coordination mechanism for U.S.  bilateral programs
designed to help the newly independent states of the former Soviet
Union (FSU) transform their centrally controlled economies into
market-based economies and to establish more democratic
governments.\1 Specifically, we reported that the State Department
Coordinator's authority was weak and that the U.S.  Agency for
International Development (USAID) and the other agencies using
Freedom Support Act\2 funds were frequently embroiled in disputes
about implementation of their programs.  Officials representing
several agencies acknowledged the problems we reported.  State and
USAID officials subsequently testified to Congress that coordination
and interagency working relationships had improved. 

This report (1) assesses efforts to strengthen the Coordinator's
authority over bilateral FSU programs but identifies a new challenge
to the Coordinator's authority and (2) analyzes the impact of changes
in USAID's relationships with other agencies on interagency
cooperation in implementing Freedom Support Act programs.  We are
sending this report to those committees that have primary
responsibility for the U.S.  assistance program to the FSU. 


--------------------
\1 Former Soviet Union:  U.S.  Bilateral Program Lacks Effective
Coordination (GAO/NSIAD-95-10, Feb.  7, 1995). 

\2 Formally referred to as the Freedom for Russia and Emerging
Eurasian Democracies and Open Markets Support Act of 1992 (P.L. 
102-511). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Since our February 1995 report, the FSU Coordinator's role has been
expanded to include oversight of all U.S.  government bilateral
programs in the FSU, and his authority to review budgets and direct
the interagency process for program development and implementation
has been strengthened.  Despite this, the Coordinator has been unable
to effectively exercise his authority to oversee the FSU anticrime
program being financed with Freedom Support Act funds. 

Interagency cooperation in implementing Freedom Support Act programs
has improved, with fewer disagreements on program content. 


   BACKGROUND
------------------------------------------------------------ Letter :2

In December 1990, the United States began to provide limited
assistance to the Soviet Union to show support for reform efforts. 
Following the dissolution of the Soviet Union in December 1991, the
United States increased its commitments of assistance to the
successor states.  In October 1992, the Freedom Support Act was
enacted, again increasing assistance to the FSU and establishing a
multiagency approach to providing assistance.  The act called for the
appointment of a Coordinator within the Department of State whose
responsibilities would include designing an assistance and economic
cooperation strategy for the FSU and ensuring program and policy
coordination among federal agencies in carrying out the Freedom
Support Act policies. 

The act sets forth the broad policy outline for helping the FSU
countries implement both political and economic reforms.  It also
authorizes a bilateral assistance program that is primarily being
implemented by USAID.  In addition, other legislation authorized
bilateral programs, including loan and loan guarantees to promote the
export of agricultural and other products, and assistance in
dismantling nuclear weapons in the FSU. 

Twenty-three government agencies have obligated $5.4 billion for
grant technical assistance programs, exchange programs, training,
food and commodity donations, mutually beneficial science and
technology projects, and support of joint space efforts.  Two
programs--the Freedom Support Act Program and the Cooperative Threat
Reduction Program--represent nearly half the obligations for grants
for technical assistance, exchanges, and other grant-funded programs. 
The U.S.  government also made available $10 billion in credit for
bilateral loans, loan guarantees, and insurance programs for the
period fiscal year 1990 through December 1994.\3 Trade and investment
programs sponsored by the Department of Agriculture, the
Export-Import Bank, and the Overseas Private Investment Corporation
constitute most of the credit/insurance programs. 


--------------------
\3 Former Soviet Union:  Information on U.S.  Bilateral Program
Funding (GAO/NSIAD-96-37, Dec.  15, 1995). 


   THE COORDINATOR'S ROLE HAS BEEN
   STRENGTHENED, BUT IMPROVEMENTS
   NEEDED IN ANTICRIME PROGRAMS
------------------------------------------------------------ Letter :3

On April 4, 1995, the President strengthened the role and authority
of the Coordinator in a memorandum designating him as a Special
Advisor to the President and to the Secretary of State on assistance
to the FSU.\4 The memorandum specifies that the Coordinator will

     "preside over the allocation of U.S.  assistance resources and
     direct and coordinate the interagency process on the
     development, funding, and implementation of all U.S.  Government
     bilateral assistance and trade and investment programs related
     to the NIS [New Independent States]."

The memorandum further specifies that to enable the Coordinator to
effectively carry out his responsibilities

     "the Departments of Defense, Treasury, Justice, Commerce,
     Agriculture, Health and Human Services, and Energy, the Agency
     for International Development, the United States Information
     Agency, Peace Corps, Environmental Protection Agency, National
     Aeronautics and Space Administration, Nuclear Regulatory
     Commission, Overseas Private Investment Corporation, Trade and
     Development Agency, and Export-Import Bank, and any other
     Executive departments and agencies with activities related to
     the NIS bilateral assistance and export and import activities
     are directed, to the extent permitted by law, to bring all
     programs and budget plans for such assistance and activities to
     [the Coordinator] for review before submission to the Office of
     Management and Budget and before implementation.  [The
     Coordinator] shall be responsible for ensuring that all such
     plans are consistent with Administration priorities and
     policies."

This charter explicitly expanded the Coordinator's role in overseeing
other agencies' programs, such as the Department of Defense's
Cooperative Threat Reduction Program and the Export-Import Bank's
trade and investment programs. 

Even though the FSU Coordinator's role and authority have been
expanded, the Coordinator has had no control over the FSU anticrime
assistance program.  Rather, the Department of State's Bureau for
International Narcotics and Law Enforcement Affairs (INL)\5 controls
the program, and disagreements between the Coordinator and INL have
inhibited the development of an integrated approach to anticrime
assistance in the FSU.  For example, in May 1994, the Coordinator
noted that INL had suggested funding levels to a key congressional
committee before discussing the matter with the Coordinator or the
Russian government.  He also stated that INL had requested proposals
from law enforcement agencies before the Coordinator had determined
an effective policy framework for assistance. 

Other documents as recent as June 1995 show the Coordinator's
continued unsuccessful efforts to integrate INL activities into
overall reform programming.  Both INL and the Coordinator have
working groups responsible for planning assistance in the anticrime
area.  While the chair of each working group participates in the
other group's meetings, relationships between the two working groups
have been strained.  More importantly, however, the anticrime working
groups have not integrated their programs with activities involving
banking reforms, privatization, and capital markets development, all
areas susceptible to criminal corruption. 


--------------------
\4 The initial May 19, 1993, Coordinator's Charter had been signed by
the Assistant to the President for National Security Affairs and
specified that the Coordinator would report to the
Ambassador-at-Large and a Special Assistant to the President. 

\5 The Bureau for International Narcotics Matters was renamed the
Bureau for International Narcotics and Law Enforcement Affairs in
February 1995. 


   COOPERATION AND COORDINATION
   AMONG AGENCIES HAS IMPROVED
------------------------------------------------------------ Letter :4

In February 1995, we reported a pattern of disputes centering on
money and policy between USAID and other agencies involved in
implementing Freedom Support Act activities in the FSU.  Dissension
had arisen partly because (1) USAID attempted to exclude other
agencies from taking part in FSU programs by not providing funds and
(2) agencies perceived that they were relegated to the role of a
contractor.  Since that time, relations among the agencies have
improved, largely because of a change in the way funds are
transferred and USAID's efforts to engender cooperation and
coordination from other agencies. 


      USAID'S RELATIONSHIP WITH
      AGENCIES VARIES WITH THE
      TYPE OF TRANSFER AGREEMENT
---------------------------------------------------------- Letter :4.1

USAID is the primary implementing agency for assistance, although it
also acts as a bank through which the State Department Coordinator
distributes money.  USAID participates to varying degrees in all
sectoral working groups for FSU assistance.  It also receives and
reviews proposals for projects from U.S.  government agencies and
independent contractors and advises the Coordinator in the selection
of projects.  USAID mission and headquarters officials meet with
officials of the FSU to gather information and strongly influence
project development.  USAID is also accountable for ensuring that (1)
funds are properly transferred to other agencies through the
appropriate transfer mechanism, (2) the proper Treasury accounts are
being used to effect a transfer, and (3) transfers are accurately
reported. 

USAID transfers or allocates money to an agency by an agreement
authorized under either section 632(a) or section 632(b) of the
Foreign Assistance Act.\6

When USAID transfers or allocates funds under section 632(a), USAID's
agreement with the recipient agency does not obligate the funds.  The
recipient agency, then, obligates and expends the funds in accordance
with (1) authority governing its own activities, (2) authorities
granted in the Foreign Assistance Act, or (3) a combination of these
authorities.  For example, in making procurements, an agency may
follow its own or USAID's regulations.  Under this type of agreement,
USAID has minimal management responsibility for approving the
agency's activities. 

On the other hand, USAID agreements made under section 632(b)
directly obligates the funds to the recipient agency and USAID
retains greater control over how the funds are used and accounted
for.  USAID and the recipient agency negotiate what the agency is to
do under the program, and the agreement usually requires that the
recipient agency follow USAID's procurement rules.  Under this type
of agreement, the recipient agency either requests an advance or
reimbursement for actual services rendered.  USAID also obligates
funds to agencies carrying out FSU programs under a Participating
Agency Service Agreement (PASA) and is responsible for requesting the
participating agency's services. 


--------------------
\6 See 22 U.S.C.  2392(a) and (b). 


      USAID AND AGENCIES HAVE
      WORKED TO BETTER THEIR
      RELATIONS
---------------------------------------------------------- Letter :4.2

Our February 1995 report pointed out that the Coordinator's role had
been complicated by the existence of serious disagreements between
agencies over various aspects of the program.  Also, USAID had been
involved in numerous disputes with other government agencies over
money and policy.  To test whether interagency relationships had
changed, we reviewed the relationship of USAID with 10 agencies, with
a focus on
11 interagency transfers made after May 1994.  In these cases, we
found that the agencies cooperated and coordinated better than they
had in the past, and there was less acrimony involved in implementing
programs in the FSU.  Several factors led to this change.  For
example, USAID has made greater use of section 632(a) transfers,
where the State Department Coordinator, rather than USAID, reviewed
and approved the implementing agency's plans for program funding,
content, and implementation.  Moreover, USAID has taken the lead in
establishing more cooperative relationships than it has had in the
past. 

Leadership by the USAID Assistant Administrator for Europe and the
New Independent States, and USAID's control over program content,
funding, and implementation of projects in certain sectors, such as
agriculture and the environment, have reduced disagreements.  In
these and other sectors, USAID has used section 632(b) transfer
authority or a PASA to carry out its own, rather than the
implementing agency's, program priorities.  As noted previously,
under a 632(b) transfer agreement or a PASA, USAID as the accountable
agency, sets standards and imposes its judgments about project
planning and implementation of its sector strategies.  Although the
implementing agencies have at times disagreed with USAID's decisions
on funding and priorities, they have largely stopped protesting those
decisions to the Coordinator as they did in the early days of the FSU
program.  According to officials at two agencies, it was not worth
their effort to raise the disputes with USAID to a higher level. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :5

The Departments of State, Agriculture, Commerce, Defense and Energy;
the Environmental Protection Agency; the Food and Drug
Administration; the Overseas Private Investment Corporation; the
Peace Corps; the Trade and Development Agency; the U.S.  Information
Agency; the Centers for Disease Control and Prevention (CDC); and
USAID were provided an opportunity to comment on a draft of this
report.  State and USAID provided written comments (reprinted in
their entirety in appendixes I and II, respectively), and the
Department of Energy and CDC provided oral comments, which have been
incorporated in the report as appropriate. 

The agencies commenting on this report generally agreed that (1)
coordination had improved, (2) the Coordinator's role had been
strengthened, and (3) cooperation among implementing agencies had
improved.  USAID indicated that it supported the report's findings
and conclusions.  State acknowledged that serious friction had
existed between the Coordinator and INL regarding the anticrime
assistance program; however, State asserted that these disagreements
have been resolved.  State indicated that (1) the Coordinator and INL
had met and agreed upon the policy framework for law enforcement
assistance funded under the Freedom Support Act and (2) staffs were
working closely.  However, State commented further that it is
significant that "law enforcement assistance involves very different
programs and pursues different aims than does the bulk of our
assistance efforts."

We noted, however, that the meeting between the Coordinator and INL
referred to by State occurred on October 24, 1995.  Consequently, it
is too early to know whether the problem State acknowledged has been
resolved.  Moreover, the agreed-upon policy framework State cited
does not represent a plan to integrate law enforcement assistance
with other assistance.  Instead, the Coordinator gave to INL
management responsibility for the law enforcement component, allowing
this assistance to remain distinct from other related assistance. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

We reviewed the bilateral programs for the FSU and the interagency
structure for the programs' coordination over the period July 1994
through July 1995.  To examine interagency relationships, we reviewed
11 USAID transfers to the following 10 agencies:  the Department of
Agriculture, the Department of Health and Human Services' Center for
Disease Control and Food and Drug Administration, the Department of
Commerce, the Department of Energy, the Environmental Protection
Agency, the U.S.  Information Agency, the Overseas Private Investment
Corporation, the Peace Corps, and the Trade and Development Agency. 

We included agencies whose relations with USAID we had examined in
our previous report, agencies with trade and investment programs
representing the new emphasis of the Freedom Support Act program, and
agencies with particularly large transfers during the period under
consideration.  Except for the Commerce Department, we identified one
transfer that took place from July 1994 through June 1995.  We
examined two transfers at the Commerce Department that were
originally planned as one transfer but had been split into two
separate transactions.  We interviewed officials from the 10
agencies, the Coordinator's Office, and USAID about both overall
interagency relationships and the particular transfers we reviewed. 

We conducted our work from March to September 1995 in accordance with
generally accepted government auditing standards. 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to the Secretaries of State,
Defense, and Agriculture; the Administrator, USAID; and the Director,
Office of Management and Budget.  Copies will also be made available
to others on request. 

Please contact me at (202)512-4128 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix III. 

Harold J.  Johnson, Director
International Affairs Issues

List of Addressees

The Honorable Jesse A.  Helms
Chairman
The Honorable Claiborne Pell
Ranking Minority Member
Committee on Foreign Relations
United States Senate

The Honorable Mark O.  Hatfield
Chairman
The Honorable Robert C.  Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate

The Honorable Benjamin A.  Gilman
Chairman
The Honorable Lee H.  Hamilton
Ranking Minority Member
Committee on International Relations
House of Representatives

The Honorable Bob Livingston
Chairman
The Honorable David R.  Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
STATE
============================================================== Letter 



(See figure in printed edition.)


The following are GAO's comments on the State Department's letter
dated October 31, 1995. 


   GAO COMMENTS
------------------------------------------------------------ Letter :7

1.  Our draft report raised a concern that the planned structuring of
the former Soviet Union (FSU) program budget in fiscal year 1996 may
have weakened the Coordinator's ability to successfully exercise his
authority over programs funded through the Freedom Support Act. 
Specifically, the executive branch proposed that some FSU programs,
previously under the Freedom Support Act, be funded from the
agencies' own appropriations.  Congress rejected the executive
branch's proposal\1 and, accordingly, we have deleted our discussion
of this issue from the report. 



(See figure in printed edition.)Appendix II

--------------------
\1 See "Joint Explanatory Statement" to the Conference Report on H.R. 
1868, making appropriations for foreign operations for fiscal year
1996.  (H.  Rept.  104-295 at pages 45-46)(1995). 


COMMENTS FROM THE AGENCY FOR
INTERNATIONAL DEVELOPMENT
============================================================== Letter 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix III:1

Louis Zanardi
Richard Boudreau
John DeForge
Maria Oliver


   RESOURCES, COMMUNITY, AND
   ECONOMIC DEVELOPMENT DIVISION,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix III:2

Sarah Veale
Isidro Gomez


*** End of document. ***