Pre-Award Risk Management: USAID and IAF Missed Opportunities to Enhance Risk Management of Local Entities in Latin America and the Caribbean

Audit Report
Report Number
9-000-24-004-P

Why We Did This Audit

The U.S. government has significant economic, political, security, and humanitarian interests in Latin America and the Caribbean (LAC) that cover a range of topics from illicit drugs to immigration to foreign trade. Working with entities at a local level is an integral aspect of U.S. foreign assistance policy and an important mandate for USAID and the Inter-American Foundation (IAF).

USAID’s Administrator has identified localization as a top priority, and the agency intends to provide at least a quarter of its program funds to local entities by the end of fiscal year 2025. IAF directly invests in locally led development to advance program areas important to U.S. foreign assistance.

However, as with any foreign assistance award, there are risks, including those associated with engaging local entities. For example, USAID has encountered challenges when working with local entities that lack sufficient expertise or financial resources to implement U.S. programs or adhere to U.S. regulations. Furthermore, U.S. government efforts in the LAC region face a range of external issues, such as corruption and criminal activity.

We conducted this audit to determine the extent to which (1) selected USAID missions and (2) IAF implemented procedures for managing risks when selecting local entities for awards in LAC.

What We Found

The three USAID missions we reviewed implemented certain required agency procedures before making awards to LAC entities but missed opportunities to enhance risk management. The missions conducted pre-award risk assessments for all sampled awards, including considering past performance and organizational and financial capacity. However, two of the three missions did not request or document required reviews to determine whether local entities had any known involvement with drug trafficking. Two missions did not consistently obtain signed certifications and assurance statements attesting recipients’ compliance with all relevant U.S. laws and USAID policies. All three missions also missed opportunities to fully integrate USAID’s enterprise risk management (ERM) guidance into their pre-award risk assessment processes.

IAF implemented risk management procedures before awarding LAC grants but did not follow certain Federal requirements or use an ERM framework to inform its practices. IAF took steps to identify and assess risks during the pre-award process for the sampled awards. However, IAF did not ensure that the required reviews were conducted to determine whether key individuals from local entities had any known involvement with drug trafficking prior to making the awards. Furthermore, while IAF adopted some risk management procedures, the agency did not have a formal ERM framework in place to inform and guide implementation of those practices.

What We Recommend

We made six recommendations—three for USAID and three for IAF—to improve compliance with agency and Federal requirements and strengthen pre-award risk management procedures. USAID and IAF agreed with five of our recommendations. USAID partially agreed with one recommendation.

Pre-Award Risk Management - USAID and IAF Missed Opportunities to Enhance Risk Management of Local Entities in Latin America and the Caribbean (9-000-24-004-P, 99100222).pdf1.22 MB

Recommendations

Recommendation
1

We recommend that USAID's Deputy Administrator for Policy and Programming: Direct the Bureau for Latin America and the Caribbean to develop and implement an action plan to ensure missions' compliance with Automated Directives System Chapter 206 and 303 requirements for pre-award risk management procedures that includes steps to make sure (a) overseas leadership at posts designated as covered countries are aware of their responsibility to implement and document compliance with Automated Directives System Chapter 206, including the determination process (i.e., post advance review), and (b) all signed certification and assurance statements required by Automated Directives System Chapter 303 Section 3.8, "Pre-Award Certifications, Assurances, Representations, and Other Statements of the Recipient and Pre-Award Terms," are obtained for all assistance awards to local entities, as applicable.

Questioned Cost
0
Funds for Better Use
0
Recommendation
2

We recommend that USAID's Assistant Administrator for the Bureau for Management: Direct the Office of Acquisition and Assistance to incorporate reference to USAID's Risk Appetite Statement and enterprise risk management guidance, including the seven-step risk management process found in Automated Directives System 596, into the agency's pre-award risk management procedures in Automated Directives System Chapter 303.

Questioned Cost
0
Funds for Better Use
0
Recommendation
3

We recommend that USAID's Assistant Administrator for the Bureau for Management: Direct the Office of Management Policy, Budget, and Performance to review Automated Directives System Chapter 206 to capture organizational and technical updates and ensure it is accurate and in full compliance with Title 22 of the Code of Federal Regulations Part 140 and the most recent Presidential Determination on Major Drug Transit or Major Illicit Drug-Producing Countries memo, as applicable.

Questioned Cost
0
Funds for Better Use
0
Close Date
Recommendation
4

We recommend that IAF's President and Chief Executive Officer: Develop and implement an enterprise risk management framework.

Questioned Cost
0
Funds for Better Use
0
Recommendation
5

We recommend that IAF's President and Chief Executive Officer: Incorporate the enterprise risk management framework into IAF's pre-award risk management procedures.

Questioned Cost
0
Funds for Better Use
0
Recommendation
6

We recommend that IAF's President and Chief Executive Officer: Develop and issue written guidance on drug-trafficking prohibition requirements in Section 487 of the Foreign Assistance Act and Title 22 of the Code of Federal Regulations Part 140.

Questioned Cost
0
Funds for Better Use
0
Close Date