Inspector General Finds Lack of Oversight of Chemonics…Again

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Monday, 01 October 2012 16:17

The USAID Inspector General (OIG) released an audit this weekend of Chemonics’ Haiti Recovery Initiative II program (HRI-II), funded by USAID. HRI-II, the successor to the HRI program which began right after the earthquake, aims to “help Haiti strengthen its economy and public institutions in the three strategic development corridors of Port-au-Prince, Saint-Marc, and Cap-Haitien,” according to the OIG. But, as the Associated Press reports today:

A newly released audit says the largest U.S. contractor working to stabilize Haiti after the 2010 earthquake is “not on track” to compete its assignments on schedule, has a weak monitoring system and is not adequately involving community members.

The audit is the second since the earthquake to find significant problems with Chemonics’ work in Haiti. The AP reported in December 2010:

And an audit this fall by USAID's Inspector General found that more than 70 percent of the funds given to the two largest U.S. contractors for a cash for work project in Haiti was spent on equipment and materials. As a result, just 8,000 Haitians a day were being hired by June, instead of the planned 25,000 a day, according to the IG.

Nevertheless, Chemonics has been the largest single recipient of post-earthquake funding from USAID. For the two HRI programs, Chemonics has received $103.8 million. This same process played out in Afghanistan, where despite consistently failing to produce results, Chemonics continued to receive hundreds of millions of dollars in contracts.

Weak Monitoring and Evaluation

One consistent pattern that has clearly emerged in the aftermath of the earthquake is the lack of oversight of contractors by USAID. As we have described before, after years of hollowing out USAID, it has “turned into more of a contracting agency than an operational agency with the ability to deliver,” in the words of Hillary Clinton. In turn, much of the monitoring and evaluation is actually the responsibility of the contractor itself. USAID’s contract with Chemonics contains numerous reporting requirements, yet allows the contractor to fulfill most of them without any oversight. Chemonics is required to keep an “activity database,” but the contract notes that Chemonics is responsible “for ensuring that the database contains accurate, complete, and up-to-date information.” Additionally, the contract states that USAID and Chemonics “are expected to jointly develop a system of processes and tools for the monitoring and evaluation of the country program.”

As the newly released audit finds however, both the database and the evaluation tools were poorly implemented and “made it difficult to measure the program’s impact,” as well as contributed to delays which have made the program “not on track to complete all activities.”

 


The OIG notes that the performance indicators that Chemonics developed were “not well-defined” and that the “activity database” “did not have enough information for [the USAID Office of Transition Initiatives, OTI] to see whether the activity was on track to end on time and to meet its objectives. “ In one example, the OIG found that the entry in the database for the temporary parliament building built with USAID funds simply stated:

“The subcontractor will be responsible for the following:
1)Assembling and installation of steel-framed structures; 2) Connection of utilities.

Going on to note that, “No dates or estimated timelines were included.” Of course, this is the same temporary parliament building that was left vacant for months after it was “inaugurated.” As Jacob Kushner and Jean Pharés Jérôme reported in March:

But more than four months later, that location remains vacant. The building is scattered with woodwork trimmings and debris from a costly ongoing renovation paid for by the Haitian treasury because legislators say the United States never finished the job. And critics in Haiti charge that the unfinished work and empty building stand as a powerful metaphor for much of what is wrong with USAID’s approach to development in Haiti: that it lacks coordination with and input from the Haitians themselves about how best to undertake reconstruction projects.

Of course, this is not just a problem with Chemonics, but with USAID/OTI, the office that gave them the contract. As the OIG notes, “All of the problems discussed in this finding stemmed from the fact that OTI did not make monitoring and evaluation a priority early in the HRI-II’s implementation.”

Lack of Oversight

When the OIG audited Chemonics in 2010, perhaps the most damning finding was that OTI was not conducting internal financial reviews despite that the fact that Chemonics was “expending millions of dollars rapidly on [Cash-for-Work] programs in a high-risk environment.” It seems as though little has changed in the subsequent years, as the newly released audit finds that:

OTI has conducted only one evaluation for HRI-II so far, and it took place in June 2011 to discuss and draft OTI’s strategy for Haiti, to build the new HRI-II team, and to propose ideas of where to conduct activities.

This despite the fact that “According to the HRI-II contract, program monitoring efforts should include regular evaluations of the program, as well as the activities… In general, they should be conducted between two and four times a year.”

Lack of Community Involvement

The lack of involvement of the local community has been one of the main points of criticism of the aid industry in Haiti, and on this front the audit finds Chemonics at fault as well. The OIG finds, “not all activities implemented have involved community participation in a way that guarantees sustainability.” In one especially egregious example, Chemonics

used contractors from Port-au-Prince to implement a number of activities in Cap-Haitien and Saint-Marc; these contractors brought their own people to do the jobs instead of hiring locals. As a result, residents saw jobs in their neighborhoods being done by outsiders, and without an understanding of the activities, they did not see how anyone local benefitted.

The OIG also found that “urban beautification” projects failed for similar reasons. The OIG writes, “The purpose of these projects was to improve public areas by installing plants and benches, as well as doing minor masonry work, and to project “a positive image of what role the nearby Caracol industrial park and other upcoming economic investments will play in citizens’ lives.” Although Chemonics did do some plantings, “they died from lack of care.” Meanwhile:

According to the project’s final evaluation report, residents did not understand how the activity led to the beautification of the area nor did they associate it with the industrial park. Limonade’s mayor said the municipality could have been involved more in planning the activity to ensure its success.

The Financials

Despite a growing record of a failure to produce and a number of OIG audits finding significant problems in the implementation of their programs, Chemonics has continued to receive tens of millions of dollars for Haiti projects, and hundreds of millions of dollars worldwide. For fiscal year 2011, Chemonics received $735 million dollars in contracts from USAID, more than any other vendor.  According to publically available information, Chemonics has received over $175 million for their work just in Haiti since the January 2010 earthquake.

The OIG noted in their audit that:

Budget line items in the contract provided for grants under contract ($37.3 million) and “non-grant under contract” activities, such as direct procurement of goods and services ($3.3 million) for a total of $40.6 million. As of February 2012, 141 activities worth about $22.9 million had been developed and approved, leaving $17.7 million available for new activities to be approved, implemented, completed, and closed in the 7 months left.”

Yet despite having over $17 million left, and not being on track to complete their projects, USAID has allocated an additional $23.3 million to Chemonics for the HRI-II project since February 2012, according to the Federal Procurement Database System. As for how much of this gets spent in Haiti and how much goes to overhead and back to their Washington DC headquarters, there is no information available. Documents obtained from Freedom of Information Act requests submitted by HRRW have redacted any cost information and the mandated reporting requirements on who received funds were not released. The cost information was redacted because it is considered proprietary information, presumably of the contractor, yet the AP reported recently on their quest to obtain financial information from USAID contractors in Haiti:

When the AP asked for a budget breakdown, FHI 360 spokeswoman Liza Morris said, "We were pulling that for you but were told that it was proprietary by our funder."

Who is the funder?

"Our funder," she said, "is USAID."

Reform and Pushback

A key piece of USAID reform initiative is supposed to be to move away from their reliance on these large for-profit contractors and shift more aid to local country systems. USAID Administrator Shah said just last week that their goal was to have 30 percent of USAID funds going to local organizations or governments by 2015. As we pointed out, this seems incredibly optimistic since at this point less than 1 percent of USAID funds are channeled directly to Haitian organizations. USAID has a long way to go, and unfortunately the road is not being made easier by the for-profit aid world. John Norris, writing in Foreign Policy, explains:

The theory behind relying more on local institutions is simple and compelling: If the goal of development is to build sustainable local capacity and ownership, why not have countries play a larger role in helping help themselves? Not only is this good development policy in countries where proper management controls are in place, it also has the potential to save American taxpayers a great deal of money.

U.S. contractors, looking at losing large amounts of revenue, were not about to take this lying down. The Professional Services Council (PSC), an umbrella group of government contracting firms, quickly hired lobbyists to push back against procurement reform and helped establish the Coalition of International Development Companies, an advocacy coalition of 50 contractors touting the role of "America's most effective, efficient and innovative international development companies" in advancing the national interest. Perhaps it was a coincidence, but increased lobbying funded by the PSC directly preceded a sharply worded letter from the chairman of the House Committee on Oversight, Rep. Darrell Issa, to USAID questioning the wisdom of procurement reform. The letter hammered home one of the key arguments that contractors had been using against channeling more money directly to developing-country institutions: the threat of waste and corruption by foreigners.

Of course, with hundreds of millions of dollars being awarded to for-profit firms each year, and the lack of oversight and evaluation of those firms well established, the threat of waste and corruption by them is a much greater worry.

 

Tags: chemonics | contractors | inspector general | usaid