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6. DOCUMENT DATE (110) j7. NUMBER OF PAGES (120)8.ACNME(10

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11. AESTRACT (950)

12. DESCRIPTORS (920) I. PROJECT NUMBER (150)

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'IJW Auditor General

INTERNATIONAL EXECUTIVE SERVICE CORPS PROGRAM

IS HELPING AID MEET THE CHALLENGE OF DEVELOPMENT

Grant No. AID/pha-G-73-3

The International Executive Service Corps has been successful inproviding its clients with the service and results required.more of these efforts could be directed toward lesser developed

But,

countries and smaller businesses within these countries. AID auditors found that the majority of the Corps' projects, subsidized byAID, are with medium to large scale businesses in countries that are not prime targets for development assistance.

Audit Report Number 8o-6

Issue Date October 31, 1979

Area Auditor General, WbshingfonAgency for 'nterna, onal Development

,tshingfon, DC 20523

I. ~ *




Audit Report Number: 80-6

Issue Date: October 31, 1979)

EXECUTIVE SUMMARY

Purpose of Review

AID awarded the International Executive Service Corps (IESC) its firstgeneral support grant on June 15, 1964. The purpose of the grant was topromote and assist economic growth and the well-being of the peoples ofthe world by fostering, advancing and facilitating the development andutilization of effective executive, managerial and technical skills andpractices by commercial enterprises, private non-profit organizations andgovernment agencies and authorities. Through December 31, 1978, AID hadprovided IESC with a total of $44,150,690. AID entered into a new generalsupport grant with IESC in May 1979 retroactive to January 1, 1979. Thenew grant is expected to be extended through calendar year 1982 and, AIDis expected to contribute approximately $20,000,000 during the four-yearperiod. (Page 13).

The purpose of our review was to determine if IESC's program is effectivelymanaged, if it is consistent with AID development objectives, and if thegrant funds were spent for the purposes intended. (Page I ).

Findings

The review disclosed four major findings regarding the IESC program accomplishments. Pertinent comments on these findings are highlighted below:

IESC Program is Helping AID Meet the Challenges of Development

The International Executive Service Corps has been successful in providingits clients with the service and results required. But more of theirefforts could be directed toward lesser developed countries and smallerbusinesses within these countries. AID auditors found that the majorityof the Corps' projezts, subsidized by AID, are with medium to large scalebusinesses in countries that are not prime targets for development assistance. (Page 9 ).

IESC has to Improve its Project Evaluation

Under general support grants AID requires each grantee to submit a reportdetailing the effectiveness of its annual program. These reports are tobe developed in sufficient detail to enable AID to judge the relationshipof the programs to AID objectives. To meet these reporting requirements,IESC sends AID the project summary reports prepared by the New York Fvaluation Department. In our judgement these reports do not contain sufficientinformatiun to permit AID to make an adequate assessment of the effectiveness of IESC projects in relation to Agency development objectives; e.g.,there is no reporting on the final outcome of the assistance rendered. Wecould not, however, find any documentation wherein IESC was requested toalter its reporting to conform with AID needs. (Page 8).

Inadequacies in AID's Oversighc, Control and Evaluation

Periodic evaluations are a key element of the AID management process. As such, they enable management to appraise whether activities are meetinggoals and merit continued funding. Recognizing the need for such evaluations, the grant agreement specifies that IESC will cooperate with AID in evaluating the effectiveness of the IESC program. We found that no examinations have been performed 'y AID personnl. In fact, we found cases where USAID Mission personnel were totally unaware that AID funds were utilized by IESC for projects within their country. (Page 10).

IESC's Grant is Contrary to AID's Handbook

AID funding is provided under a general support grant. However, the funding is restricted to overseas program expenses which, in our opinion, classifies it as a specific support grant. This is contrary to general support grant policies as reflected in AID Handbook 13. AID in effect-has a specific support grant but, is following the rules and regulations applicable to general support grants. (Page 13).

The report contains eight recommendations which are to be found on

pages 15 and 16.

Management Comments

AID's Bureau for Private and Development Cooperation, Office of Private and Voluntary Cooperation, had reviewed the report and indicated they found the report exceedingly useful. They did provide comments which, they feel amplified, clarified and strengthened the report. These comments were taken into consideration and changes made where considered appropriate.

ii




TABLE OF CONTENTS

Page EXECUTIVE SUMMARY

SECTION 1:

INTRODUCTION AND SCOPE 1 A. Introduction 1

Costs of the IESC Programs 2B. Scope of Audit 3C. Prior Audits 3

SECTION II:

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 4 A. Greater Coordination Between IESC and AID is

Needed to Meet the Challenge of Development 4

How IESC Does Business 4Meeting the New Directions Mandate 5 Project Activities in Countries Where There is

No Development Rationale 7 B. IESC has to Improve its Project Evaluation 8C. Assistance to Small Business Enterprise 9D. Lack of AID Oversight, Control and Evaluation 10 E. Financial Raview F. IESC Should be Funded Under a Specifi.c Support

12 Grant 13G. Other Matters 13

SECTION III:

LIST OF REPORT RECOMMENDATIONS

Deficiency in Follow-On Grant No. AID/SOD/PDC-G-0206 13

15

SECTION IV:

LIST OF REPORT RECIPIENTS 17

EXHIBIT A Summary of Costs Claimed and Accepted January 1, 1977 through December 31, 1977

EXHIBIT B Summary of Costs Claimed and AcceptedJanuary 1, 1978 through December 31, 1978

SECTION I

INTRODUCTION AND SCOPE

A. Introducti on

The International Executive Service Corps CIESC) was founded in 1964 as a not-for-profit corporation under the laws of the State of New York.Its certification of incorporation, as revised in 1971, defines its purpose as follows:

"To promote and assist economic growth and the well-beingof the peoples of the world by fostering, advancing and facilitating the development and utilization of effective executive, managerial and technical skills and practicesby commercial enterprises private non-profit organizationsand government agencies and authorites established and to be established in countries where such skills and practices are lacking or inadequate for sound economic growth; and,in furtherence of the foregoing purposes, to conduct research,studies and surveys to determine the specific requirements of such countries for such skills and practices, and to makeavailable in such countries services of executive, managerialand technical persons qualified in such skills and practices."

These purposes are attained by providing professional management services to promote enterprises and government institutions in the lesser developedcountries. In providing these services, IESC operates much like a management consulting firm. The difference is that the services are performedby retired U. S. business executives, referred to as volunteers, withoutcompensation. This volunteerism is the distinguishing characteristic of IESC.

IESC is governed by a Board of Directors consisting of 13 members and isadvised and assisted 'y a council of 97 prominent civic, business and academic leaders. The Board establishes policy and guidance, approvesplans and budgets, and maintains oversight of activities through the Executive Committee.

The program and administrative staff, under the leadership of the president,is responsible for developing, reviewing, and monitoring program activitiesin 50 countries. This staff, consisting of 77 Americans, is located in NewYork City and 23 countries. The New York office employs 57 Americans who are involved in program and administrative support functions. Twenty Americans serve abroad, 19 as Country Directors.

Cost of the IESC Programs

Since its inception, IESC has relied largely on AID funding. Privatecontributions have constituted another source of funds. A third sourcehas been the constributions which IESC receives from clients. Thesecontributions, which are based on an ability to pay, covers a part ofthe volunteer's travel and living costs as well as IESC's overhead cost.The total amount provided by these sources during calendar year 1978 was $9,549,153 as shown below:

AID $4,300,000 Contributions 596,746Client Contributions 4,652,407

$9,549,153

The AID funds are provided through general support grants under which AIDagrees to fund a non--identifiable share of IESC's annual budgets forapproved projects. No portion of the grants may be used to pay New Yorkheadquarters office support costs. The grants are awarded on the premisethat IESC's program fosters the goals of the Foreign Assistance Act. The grants, which ar-e effected under the authority of the Foreign Assistance Act of 1961,'as amended, have funded about 49 percent of IESC's annualbudgets for the period 1973-1978. The balance of the budgets were fundedby contributions from clients and private sources.

"IESC's annual budget is comprised of three basic elements: (1)projectcosts, which consist of volunteer travel, subsistence and other expensesassociated with implementing some 600 projects annually, (2)country director costs which consist of expenses associated with program and projectdevelopment, monitoring and administering the projects and with maintaining the local office and, (3)New York headquarter costs which consist ofex'enses associated with selecting volunteer executives for projects andadministering, monitoring and evaluating the worldwide program. The costspertaining to each of these elements in fiscal year 1978 are shown below:"

Project Costs $4,317,076 Country Director Costs 2,499,637 New York Headquarters Costs 2413,826

$9,230,539

The AID grant instruments restrict the use of funds to costs related totravel, subsistence and stipends paid to or on behalf of volunteer executives and the country directors operating expenses. The grants do not,however, specify discrete programs or projects to which the costs must beapplied in whole or in part. Expenditures by IESC for individual projectsare not controlled by AID.

2

B. Scope of Audit

The Office of the Area Auditor General/Washington has performed an examination of the general support grants awarded to IESC for the period January 1,1977 through December 31, 1978. The purpose of the examination was to determine if rESC's program is effectively managed, if it is consistent with AIDdevelopment objectives, and if the grant funds were spent for the purposesintended.

The examination was performed at IESC's headquarters in New York and fivefield locations: Costa Rica, Panama, Colombia and Brazil (Rio de Janeiroand Sao Paulo). Itwas conducted in accordance with generally acceptedaudit standards including such discussions and tests of records and procedures as was considered necessary in the circumstances.

C. Prior Audits

The last review of the IESC program was done by the Defense Contract AuditAgency at the request of the Auditor General. The audit report (No. 617102-0678, dated May 4, 1977) focused on the financial aspects of the grantand did not include a review of management. The major issues in the reportpertained to a recommended refund or offset to AID of $5,334,100 collectedby IESC over the years in the form of contributions from clients. Subsequently, in a memorandum dated January 18, 1978, tha Office of the GeneralCounsel indicated AID had no legal entitlement to this refund.

3

SECTION II

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

A. Greater Coordination Between IESC and AID is Needed to Meet the Challenge of Development

Much more can be done by IESC to achieve the New Directions mandate of AID. Activities are heavily focused on organizations where the direct or even indirect impact upon the poor majority is frequently not apparent. Some activities are located in countries where there is no AID development program and the majority of IESC projects are with medium to large scale businesses.

IESC's managemeot:: perceives its role as:

"...an innovative partnership of U. S. business and government run by businessmen. Its purpose is to help the peopleof less developed countries speed their own economic development and improve the quality of their lives."

IESC was established as a vehicle for responding to the needs of commercial enterprises, private non-profit organizations and government agenciesand authorities. It recruits and provides volunteers as short-term counselors and advisors in suc" fields as general management, production, personnel, marketing and finance. The volunteer assignments, averaging two to two and one-half months, are directed at solving specific managerial or. technical problems of specific firms j: host government agencies.

How IESC does Business

Responsibility for administering the program abroad rests with a resident country director. The country director works closely with the local business community as well as the government in generating projects. Guidance and contacts within the business community are provided by a local steering committee composed of selected leaders who have a thorough knowledge of their country's needs.

All requests for project assistance must be submitted to IESC headquarters in New York for approval. Once projects are approved, the Executive Recruitment group is then responsible for locating and selecting qualified volunteers. This group, also consisting of volunteers, draws upon IESC's file of registered volunteers, their own personal acquaintances, and on the nearly 500 U. S. corporations which sponsor or otherwise support IESC activities.

Each client entering into a project agreement with IESC must agree to make a contribution covering some of the costs associated with volunteer travel, subsistence and IESC's overhead. IESC policy calls for a contribution based upon the client's ability to pay, lower contributions may be negotiated if the country director determines the client is unable to pay the guidelines

4

contribution. This lower contribution, however, has to be justified and is subject to acceptance by the New York headquarters.

Based on our review, we have concluded that the volunteer executives do an outstanding job, and provide clients with the services and results hoped for at the time the project agreement with IESC is signed. In fact,in some cases, the results were greater than what the clients hoped would be accompli-shed.

Meeting the New Directions Mndate

Gased upon our review of four countries inLatin America, we concludedthat a majority of IESC's specific projects do not comport with the New Directions mandate.

IESC implements about 600 projects annually. These projects are programmedand classified by fields of interest approved by the IESC Board of Directors. The fields of interest approved for 1978 were:

Agriculture and Food ProcessingMachinery, Metal, Electrical Products and Transportation

EquipmentConstruction, Real Estate Development and Building Materials Textile and Apparel ManufacturingComnunications, Transportation Services and Utilities Wholesale and Retail Merchandising Chemicals, Pharmaceutical, Cosmetics and Petroleum Products Mining, Refining and Base Metal Manufacturing Banking and Finance Paper, Paper Products, Printing and Publishing Health, Education and Insurance Government Administration Miscellaneous Irdustries and Services

To ascertair, whether the projects carried out under these fields o' interest were addressing the needs of the poor majority, we reviewed four country programs - Brazil, Colombia, Costa Rica and Panama. In those four countries there are 137 projects which we classified into two categories: those providing some direct benefits to the poor; and those providing no apparentbenefits to the poor. This categorization of projects which make up theIESC portfolio was discussed at length with a number of IESC personnel during our review.

Based upon our review, only 25 percent (35 projects) of the projects had a measurable impact on the poor. The remaining 75 percent (102 projects) helpedimprove individual client's production, quality, management and efficiencybut, in our judgement, did not have a direct impact upon the poor majority.

In order to test our classification we visited 48 projects, the results of which supported our classification.

5

Some examples of projects that were considered successful from the clients view point that did not have an impact on the poor are:

-- A Volunteer executive was sent out to assist a private golf club complete with recreational facilities. This is a membership, stockholder owned club. A share of stock is currently valued at $4,500; there is an initiation fee of $2,500, plus dues of $50 a month. On this project guidance was provided in all phases of club administration, including training of key personnel and preparation of a management mamn

A volunteer executive assisted a publisher selling a reference book similar in content to "Who's Wiao in America." The company officials had the ability to edit and print the publication '.utdid not have the skill or knowledge to sell and distribute the work.

A manufacturer of musical ihstruments received assistance in improving quality control and introducing new manufacturing techniques. The quality of the product improved and sales increased but, any increase in employment would be restricted to a highly specialized type of employee.

A producer of liquors and wines received assistance in upgrading the production of gin. The volunteer executive helped the client increase production facilities and to become more efficient. Quality of product improved and production increased, but there was no increase in employment.

From the foregoing we conclude that much of the IESC program as now structured and funded by AID under its annual general support grant falls outside the New Directions mandate as spelled out in the Agency'sJuly 22, 1975 Policy Statement on Implementation of "New Directions" in Development Assi stance.

An independent evaluation of IESC financed by AID, was performed by the consulting firm of Robert R. Nathan Associates, Inc. The evaluation report was issued in two parts on May 27 and October 11, 1977. In essence, the reports pointed out, as we noted above that IESC can do more in developing projects that have broader economic impact on the poor.

IESC cannot, however, be totally responsible for lack of compliance with the New Directions mandate because AID has not actively reviewed and monitored the IESC program funded by the grant. (See page 10).

6

Recommendation No. 1

Bureau for Private and Development Co-. operation CPDC/PVC) should establish specific guidelines for IESC in order to meet the New Directions mandate.

Project Activities in Countries Where There is no Development Rationale

Generally, IESC in the past has been most active in the relatively advanced strata of the developing world, where an active private sector is in operation.

The selection by IESC of the countries in which ft operates is determined by the potential viability of nrograms within those countries. Factorsconsidered include the attitude of the host government, and the need and want for IESC services. The relative level of development of a countrydoes not appear to be the critical determinent in the decision to undertake a country program.

IESC has projects in 50 countries, 13 of which are countries where AIDdoes not have an active development assistance program. These are:Brazil, Venezuela, Iran, Kawait, Lebanon, Bahrain, Greece, Israel, SaudiArabia, Taiwan, Hong Kong, Malaysia and Singapore. These countries have a relatively high annual per capita income. For example, the 1978 annual per capita income in the 13 countries ranged from a low of $860 in Malaysiato a high of $4,544 in Saudi Arabia. AID's policy is that countries havingan annual per capita income of S500 or more should not receive concessional assistance.* In 1979, IESC reported it is active in only six non-AID countries.

Of the $6,816, 713 attributed to the program in fiscal year 1978, approximately $2,508,812 were used for projects in thesE non-AID countries. Thisrepresents 37 .percent of all project funding, and seems to us to be a highpercentage of spending in countries which do not have an AID program.

The independent evaluation report issued in 1977 also showed concern in this area. The report stated:

"We see no mechanism or decisionmaking process, hovever, that addresses the question of when a program shoild be started in one country or discontinued in another. In fact, investi...gation has suggested that some projects could have been undertaken by groups other than IESC...."

"...the present list of countries does include some nations... which would appear to be able to obtain for themselves services of the kind and quality which IESC offers, without requiring thesubsidy provided to iESC by the United States Government."

*AID Handbook 1, Part II-1, p.l.

AID is aware and has authorized IESC to conduct programs in non-AID countries. However, in our opinion, the funds should be utilized to a much higher degree in countries where it has an impact on the poor.


Bureau for Private and Development Cooperation (PDC/PVC) urge IESC to insure AID that more funding has a direct impact on the poor.

B. IESC has'to Improve its Project Evaluation

Organizationally, IESC has two levels of project evaluation: one in the field and one in the New York headquarters office. But, in spite of thetwo levels, IESC does not adequately evaluate the effectiveness of its annual program.

In its New York office IESC has an Evdluation Department'which does nothingmore than gather and assimilate information. The various reports that comein from the field are consolidated by the Evaluation Department staff into a project summary report, which are added to the project files and a copyis forwarded to AID as a report on accomplishments.

In the field there are three main reports: at project completion, thecountry director is required to submit a Project Evaluation Report to NewYork, the volunteer executive is required to submit a report of assistancerendered and, the client is requested to submit a confidential report toIESC's Evaluation Department. All three reports are for use by the NewYork headquarters in determining if project objectives have been met andthe project was successful. Reviewing a project immediately after completion may show the volunteer executive did an excellent job but will not showwhat, if anything, the client has done to implement the recommendation. Ifthe recorimendations are not implemented, the project cannot be consideredsuccessfui. An example of this happened on a project with a manufacturerof sewing machines anc television cabinets which New York considered a sucessful project, where as, all other evidence indicates the project was not satisfactory or successful. The project was not successful because the volunteer executive's recommendations were not acted upon. In our opinion, a proper evaluation cannot be performed until 9 - 15 months after completionof the project.

Under general support grants AID requires each grantee to submit a reportdetailing the effectiveness of its annual program. Under the rules these reports are to be developed in sufficient detail to enable AID to judgethe relationship of the programs to AID objectives. To meet these reporting requirements, IESC sends AID the project summary reports prepared bythe New York Evaluation Department. In our judgement these reports do not

8

contain sufficient information to permit AID to make an adequate assessment of the effectiveness of IESC projects in relation to Agency development objectives; e.g., there is reporting on the final outcome of theno assistance rendered. We could nolt., however, find any document whereinIESC was requested to alter its reporting to conform with AID needs.

Recognizing the weakness in the area of evaluation, IESC management issued a mandate to all country directors on March 22, 1979, requiring all countrydirectors to do a "Post Project Follow-Up" 12 months after completion of every project. We agree with this mandate, however, we suggest that when a country director does a Post Project Follow-Up, a simple follow-up reportbe prepared and placed in the project file to give a complete picture.


Bureau for Private and Development Cooperation (PDC/PVC) should assure that IESC is doing the Post Project Follow-Up as indicated in their March 22, 1979, mandate.

C. Assistance to Small Business Enterprise

IESC should do more to assist small businesses. Several years ago IESCstarted a small business program but it has not been too successful becausecountry directors have a tendency to place too much emphasis on medium/large business enterprises and governmnent entities. This is contrary toIESC's own stated policy.

In the 1969 Non-Capital Project Paper, AID viewed IESC as a tool for improving management and production in private enterprises. IESC also seesits role in this light, as exemplified by the following statement:

"IESC's major emphasis is a development of a country's privateenterprise... IESC shares with government and business leadersin host countries a feeling of urgent need to encourage theestablishment, and expand the development, of small-scale enterprises. IESC has developed on-going programs in this fieldtailored to the needs of different countries."

Using LESC guideli:nes for determining a small business enterprise, we foundthat only 24 percent of the projects qualified as such. The guidelines fordefining small business enterprises are:

1. Annual sales volume from US$50,000 to US$1,500,000. II. Agribusiness food enterprises, such as dairies and canneries,

with maximum annual sales volume of US$2,500,000 providingproducts are obtained direct from at least 100 farmers.

III. All firms with 75 or less employees irrespective of annual sales volume except minimum must be US$50,000.

IV. Private Organizations and government agencies whose primary purpose is to aid any of the above.

9

IESC made an initial effort to establish a small scale enterprise programin the latter part of 1976 when it initiated its Small Business AssistanceTest Program. The New York.office rei.terated the need for a concertedeffort to assist small businesses on January 18, 1978. Some progress hasbeen made, but in our opinion 24 percent qualifying as small businesses is not sufficient. It is worth noting that 40 percent of the projects werewith either businesses having gross annual sales in excess of $20 million or government entities. We feel IESC should devote more effort to helpingsmall businesses; we do not advocate this be done to the exclusion of allother business. There should, however, be a more evenly balanced'mix.

Effective May 21, 1979, the New York headquarters revised the guidelinesfor defining a small business which, in effect, raises the sales volumefrom $1.5 million to $3.0 million and the number of employees from 75 to150. If the revi.sed guidelines are acceptable to AID, this will increasethe number of projects qualifying as small business enterprises. Applyingthe 1979 guidelines to the 1978 projects, the percentage of assistance tosmall businesses increases from 24 percent to 36 percent. However, a definite understanding between AID and IESC should be developed which clearlydefines what constitutes small scale business.

We believe this is important because as was pointed out in the Nathan evaluation:

"Although IESC is making an effort to improve its abilityto assist small business, the country programs do not reflect this concern."

D. Lack of AID Oversiaht, Control and Evaluation

Under a general support grant, AID has to determine whether the total program is consistent with Foreign Assistance Act priorities. We found caseswhere USAID Mission personnel were totally unaware that AID funds were utilized by IESC for projects within their country. Without the knowledge andassistance of the local missions, the Agency is not in a position to perform an effective review and evaluation.

IESC's annual program budget cycle commences some five months prior to thebeginning of the fiscal year which is on a calendar year basis. The budgetis prepared and submitted annually for a three-year projection based onbroad directives provided by New York. The projections are strictly thenumber of projects the country directors would like to attain in each functional area.

The individual country program forecast is poorly documented and is notbased on a definitive backlog of pending projects. The country programforecast is reviewed and consolidated in New York. The proposed threeyear program is submitted to the Board of Directors for review and approval. When approved, it constitutes the planned program. Thus, the three-year program is updated annually.

10

Country directors. have considerable latitude in developing and implement.ing annual programs. The directors develop programs based on their assessment of the needs of the country. They develop individual projects by selling the program to prospective clients by mailing out periodic brochures and form letters and by receiving leads from satisfied clients, the local steering committees and trade associations. Program levels vary considerably from country to country. During 1978 projects starts range from a low of one in Kuwait and Lebanon to a high of 68 in Brazil.

Under general s.upport grants the grantees are not required to account for use of AID funds for specific activities, but only in relation to the total program. Therefore, under such general support grants, AID must determine whether or not the total program is consistent with the priorities of the Foreign Assistance Act.

As noted earlier, our review concluded that only 25 percent of the IESC projects are in line with the basic policy thrust of the Foreign Assistance Act. Because general support funding is commingled with other funds, AID is in effect contributing a lump sum to IESC's annual budget. We could find no record of an effort by AID to insure its funds are attributed to New Directions type projects.

In our judgement, there are several interrelated reasons for this absence of involvement and lack of evaluation. One pertains to the definition of such responsibilities under the general support approach. AID Handbook No. 13 (IA.b.) governing the administration of general support grants, states that "self-restraint in the imposition of program control by AID officials is an essential feature of General Support Grant activities." AID, in effect, is not to get involved in the details. Another reason, in our judgement, is that AID/W has not delegated any responsibility, to the field for monitoring centrally funded general support grants. In fact, we found cases where mission personnel were totally unaware that AID funds were funding IESC program costs. in summary, there is an absence of detailed knowledge on AID's part regarding IESC's projects and the fact that they do not comply with the New Directions mandate. Much of the fault can be attributed to lack of AID oversight and involvement in the project planning and approval process.

Moreover, periodic evaluations are a key element of the AID management process. As such, they enable management to appraise whether activities are meeting goals and merit continued funding. Recognizing the need for such evaluations, the grant agreement specifies that IESC will cooperate with AID in evaluating the effectiveness of the IESC program.

We found that no examinations have been performed by AID personnel. As noted earlier, the only study of IESC was undertaken by Robert R. Nathan Associates. That review was conducted in March and April 1977, and the reports (two)- were issued May 27, and October 11, 1977. That study was essentially concerned with evaluating the performance effectiveness and development impact of the IESC; identify the internal and external factors

11

in IESC projects which contribute to the success or failure of volunteerass.ignments and; to detnrmine whether or riot an overall project redesignis warranted at thi's tmv. The report did not, however, focus on whether or not I*ESC projects were ifn line with-the "New Directions" mandate.

Recoriendation No. 4

Bureau for Private and Development Cooperation (PDC/PVC) request the USAID Missi'ons to meet periodically with the IESC Country firector to discuss what projects are being conducted within each country and determine if the projects comply with AID objectives. The USAIDs should then advise the Bureau of the results.

Recommendation No. 5.

Bureau for Private and Development Cuoperation (PDC/PVC) annually evaluate the effectiveness of IESC's program as required under the terms of the Grant.

E. Financial Review

AI'D entered into its first grant agreement with IESC on June 15, 1964, and as. of December 31, 1978, has issued four grants totalling $44,150,690. Ofthis amount $24,890,000 applies to Grant No. AID/pha-G-73-3 fdr the periodJanuary 1, 1973 through December 31, 1978. Our current audit covered the period from January 1, 1977 through December 31, 1978.

Grant Expendi'tures andDW:Downs

Based on our review of IESC's overseas project expenses for calendar years1977 and 1978, draw downs totalling $7,500,000 are acceptable under the terms and conditions of Grant AID/pha-G-.73-3. These amounts, detailed on Exhibits A and B are summarized below:

Calender Year Overseas Project

Expenses AID

Draw Downs Exhibit

1977 1978

$5,946,181 6,816,713

$3,200,000 4,300,000

A B

Total $7,500,000


The Office of Contract Management (SER/CM/SOD) accept the $7,500,000 draw down as settlement in full for services rendered in 1977 and 1978 under Grant No. AID/pha-G-73-3.

F. IESC Should be Funded Under a Speci.fic Support Grant

In 1964, AID agreed to fund 80 percent of 1ESC's overseas program expenses.and 75 percent of its New York office administrative expenses.However, in 1967 the funding arrangement was changed by mutual agreement.whereby AID would fund only allowable program expenses, and IESCwould fund New York headquarters expense with contributions from clientsand U. S. and foreign sponsors. A general support grant has been, andstill is., the instrument through which AID funding has been provided.

Under a general support grant, AID's contribution is based upon a grantee's total budget and an estimate of funds required to carry out its program. As far as IESC is concerned, budgeting for expenses is reasonably accurate. On tne other hand, budgeting for income has been conservative over the years. Actual ariual income has normally exceededthe amount budgeted, with the result that ina six-year period there hasbeen a buildup of excess income amounting to $804,262. AID has been aware of this situation and has accepted it. The Agency has continuedto base its annual funding on the proposed budget without consideringprior year excess income.

As noted above, AID funding is provided under a general support grant.The funding, however, is restricted to overseas program expenses which,in our opinion, classifies it as a specific support grant. With respectto General Support Grant Policies, AID Handbook 13, Chapter 3A, 2a states in part:

"AID's contribution is based on arantees' budget for his total program, and is expected to be commingled with funding fromother donors. The grantee is not expected to account for useof AID funds in relation to specific activities."

In our view AID in effect has a specific support grant with IESC, but isfollowing the ru>ds and regulations applicable to general support grants.


Office of Contract Management (SER/CM),in conjunction with Bureau for Private and Development Cooperation (PDC/PVC)and General Counsel (GC) should convert the IESC grant to a Specific SupportGrant in accordance with the policiesstipulated in the AID Handbook.

G. Other Matters

Deficiency in Follow-On Grant No. AID/SOD/PDC-G-0206

AID entered into a new general support grant with IESC in May 1979 retroactive to January 1, 1979. The grant is expected to be extended through

13

calendar year 1982. In support of the first year's budget AID has contributed $4,000,000 in support of overseas program expenses. Based on our review of the new agreement we find the terms and conditions incomplete and ambiguous. For example:

The new grant continued to fund overseas program costs and permits IESC to apply its client contributions against New York administrative costs. The new grant should have stated how client contributions generated from AID funds will be utilized or credited to the grant.

In an effort to restrict increases in the IESC working capital fund, the new grant attempts to establish a ceiling equivalent to 2.5 months of budgeted expenses. In our opinion, however, this restriction is without meaning because, by increasing the number of projects, IESC increases client contributions which in tern increases the working capital fund. There is no provision in the grant agreement establishing an absolute ceiling or limitation.

A provision should have been inserted in the agreement setting forth guidelines for the use of surplus income by IESC, and establishing the right of AID to credit for either the entire amount of the surplus income or for that portion not utilized.


Office of Contract Management (SER/CM) should amend the grant by specifying a dollar ceiling in lieu of 2.5 months of budgeted expenses.

14

LIST OF RECOMMENDATIONS


Bureau for Private and Development Cooperation (PDC/PVC)should establish specific guidelines for IESC in order to meet the New Directions mandate.


Bureau for Private and Development Cooperation (PDC/PVC)urge IESC to insure AID that more funding has a direct impact on the poor.

Recommendation No. 3 9

Bureau for Private and Developnent Cooperation (PDC/PVC)should assure that IESC is doing the Post Project Follow-UP as indicated in their March 22, 1979' mandate.


Bureau for Private and Development Cooperation (PDC/PVC)request the USAID Missions to meet periodically with the IESC Country Director to discuss what projects are beingconducted within each country and determine if the projects comply with AID objectives. The USAIDs should then advise the Bureau of the results.

Recommerdation No. b 12

Bureau for Private and Development Cooperation (PDC/PVC)annually evaluate the effectiveness of IESC's program as required under the terms of the Grant.


The Office of Contract Management (SER/CM/SOD) accept the $7,500,000 draw down as settlement in full for services rendered in 1977 and 1978 under Grant No. AID/pha-G-73-3.

15


Office of Contract Management (SER/CM), in conjunction with Bureau for Private and Development Cooperation (PDC/PVC)and General Counsel (GC) should convert the IESC grant to a Specific Support Grant in accordance with the policiesstipulated in the AID Handbook.


Office of Contract Management (SER/CM) should amend the grant by specifying a dollar ceiling in lieu of 2.5 months of budgeted expenses.

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SECTION IV

INTERNATIONAL EXECUTIVE SERVICE CORPS


List of Report Receipients

Deputy Administrator 1

Assistant Administrator, PDC I

Office of Legislative Affairs 1

Office of Financial Management, FM/PAD 3

Office of Private and Voluntary Cooperation, PDC/PVC 5

Office of Contract Management, SER/CM 1

Office of Contract Management, 3ER/CM/SOD 2

General Counsel

Auditor General

AAG/LA AAG/EA AAG/NE AAG/EAFR

(GC) 1

(AG) 1

1 1 1 1

-AAG/W/WAFR 1 AAG/Egypt 1 AG/IS' 1 AG/PPP 1

17

EXHIBIT A Page I of 2

INTERNATIONAL EXECUTIVE SERVICE ORPS Grant No. AID/pha-G-73-3

Summary of Costs Claimed and AcceptedPeriod: January 1, 1977 through December 31. 1,977

Volunteer Country

Country Execut ve

Costs rirectors'

Costs Total

Central America and Caribbean

Costa Rica Dominican Republic El Salvador Guatemala Nicaragua Mexico Honduras Panama Carbbean

$ 28,239 756

65,617 33,137 37,889 88,956 56,914 69,902

125

$ 76,124 -

69,135 52,330 37,915 98,797 25,859 19,678

-

$104,363 756

134,752 85,467 75,804

187,753 82,773 89,580

125

South America

Bolivia Brazil-Rio de Janeiro Brazil-Sao Paulo Chile Colombia Ecuador Peru Venezuela

8,550 136,320 208,662 179,698 170,584 185,380 103,597 117,127

-149,839 139,685 114,586 146,158 57,342 77,869 88,744

8,550 286,159 348,347 294,284 316,742 242,722 181,466 205,871

Afzica

Ghana Kenva Liberia Nigeria Tanzania Gambia Sierra Leone

4,538 75,859

145,319 83

88,132 11,744 2,466

2,812 46,842 62,594 -

6,779 1,445

197

7,350 122,701 207,913

83 94,911 13,189 2,663

East Aia

Sri Lanka Hong Kong India Indonesia Korea Malaysia Nepal Philippines

315 74,318

37 107,728 328,020 54,224 9,967

170,890

-

-78,538 86,501 35,173

-85,208

315 74,318

37 186,266 414,521 89,397 9,967

256,098

EXHIBIT A Page 2 of 2

INTERNATIONAL EXECUTIVE SERVICE CORPS Grant No. AID/pha-G-73-3

Sumary of Costs Claimed and AcceptedPeriod: January 1', 1977 through December 312 1977

Volunteer Executive

Country Directors'

Country Costs Costs Total

East Asia (Continued)

Singapore Taiwan Thailand

$ 82,713 266,764 54,859

$ 65,430 80,243 39,792

$ 148,143 347,007

94,651

Near East

Greece Iran Kuwait Lebanon Saudi Arabia Tunisia Turkey

117,731 183,898 36,904 19,902 39,685

(54) 170,381

69,438 122,579 24,343

1 29,772 -

112,704

187,169 306,477 61,247 19,903 69,457

(54) 283,085

Eg-pcInd.La Algeria

48,881 8,531 -

55,683 -(130)

104,564 8,531 (130)

World Wide 32,210 139,439 171,649

Miscellaneous 19,239 - 19,239

Total Costs Claimed and Accepted $3,646,737 $2,299,444 $5,946,181

Amount Funded by AID $3,200,000

EXHIBIT B Page 1 of 2

INTENATIONAL EXECUTIVE SERVICE CORPS Grant No. AID/pha-G-73-3

Summary of Costs Claimed and AcceptedPeriod: January 1, 1978 through December 31, 1978

Caribbean Regional 46,708

Volunteer Country

Country Executive

Costs Directors'

Costs Tc tal

Central America and Caribbean

Bahamas Costa Rica El Salvador Guatemala Haiti Nicaragua Mexico Honduras Panama Puerto Rico

$ 17,185 81,255 62,668 46,621 10,729 19,871

197,672 43,090 91,815 3,798

$ 72,701 29,390 49,870

-20,659 L56,905 34,698 54,081

-

$ 17,185 153,956 92,058 96,491 10,729 40,530

354,577 77,788

145,896 3,798

46,708

South America

Bolivia 214 - 214Brazil-Rio de Janeiro 227,364 175,736 403,100Brazil-Sao Paulo 403,819 195,998 599,817Chile 170,209 123,033 293,242Colombia 146,627 148,208 294,835Ecuador 136,116 58,960 195,075Paraguay 73 73Peru 99,676 78,424 178,100Venezuela 168,955 107,343 276,298

Africa

Ghana - 521 521Kenya 182,296 77,547 259,843Lesotho 12,246 - 12,246Liberia 196,203 56,281 252,484Malawi 11 11Mauritius 931 Nigeria 931

25,551 (5,762) 19,789Swaziland 45 - 45Tanzania 18,971 6,555 25,526Gambia 182 696 878Sierra Leone 19,560 1,652 21,212

EXHIT B Page 2 of 2

INTERNATIONAL EXECUTIVE SERV!cE CORPS Grant No. AID/pha-G-73-3

Summary of Costs Claimed and AcceptedPeriod: January 1, 1978 through December 31, 1978

Volunteer Country

Country Executive

Costs Directors'

Costs T tal

East Asia

Sri Lanka Hong Kong Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Regional

$ 16,514 53,444

291,303 227,250 99,780 114,480 127,894 254,299 150,084 (8,328)

$ 1,655 554

96,563 96,267 46,183 115,595 77,674 83,127 58,748

-

$ 18,169 53,998

387,866 323,517 145,963 230,075 205,568 337,426 208,832 (8,328)

Near East

Algeria Greece Iran Israel Jordan Kuwait Lebanon Saudi Arabia Tunisia Turkey Egypt Nepal India

-139,578 104,634

439 1,163

11,302 5,511

200 -

229,612 5,091 (608)

3,140

(387) 52,615

138,707 ----

33,656 (186)

87,564 16,201

--

(387) 192,193 243,341

439 1,163

11,302 5,511

33,856 (186)

317,176 21,292

(608) 3,140

World Wide 59,833 151,605 211,438

Total Costs Claimed and Accepted $4,317,076 $2,499,637 $6,816j713

Amount Funded by AID S4,300,000

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