Who’s tending State Department’s cash cow?

EXCLUSIVE: The U.S. State Department has been handing over billions of dollars in grants for foreign projects -- ranging  from cultural exchanges to “climate change” activities -- without adequate oversight or adequate assessment of the risks involved, and sometimes without knowing whether the money was actually spent, according to the department’s Inspector General.

Moreover, these money-management problems have been going on for years, despite specific warnings, according to the watchdog IG’s office. It says it has designated State’s oversight of grants, contracts and “interagency agreements” (where State spends money on another department’s behalf) as one of the department’s “major management challenges” every year since 2008.

In a special “management alert” issued last month, the IG’s office reports that 61 out of 156 of all the watchdog’s inspections since 2010 of the State Department’s widely varying branches  have found “specific grant-management deficiencies,” such as lack of oversight, absent or incomplete documentation, or a lack of proper final closeout for the projects.

The overall implication of the alert is that State’s top managers, especially in the departments charged with administering the bureaucracy, have not been doing anywhere near enough to clean up the longstanding mess.

The alert cites around 20 critical audits and inspections  in the past two years alone -- not to mention a previous management alert last March on “contract file management deficiencies,” which identified some $6 billion worth of contracts where files were “incomplete or could not be located at all.”

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State’s outright bestowals of grant money to individuals and organizations, as opposed to its broader aid and development programs, has been growing:  from $1.6 billion in fiscal 2012, to $1.8 billion last year. The number of individual grants, meanwhile, rose from about 14,000 to 16,800 over the same period.

Grant-making has been on the rise in part because the State Department has been moving, often with much fanfare, to rely more on private individuals and non-governmental organizations to carry out a wide variety of social, humanitarian and environmental tasks -- often because of the corruption risks and inefficiencies associated with governments in developing countries.

Spending on such new areas of business as “climate change” has also accelerated, with warnings of attendant widespread oversight problems getting flagged two years ago.

One of the main reasons for the continuing mess: the number of State Department officers overseeing the cash gusher has been nowhere near up to the task.

Only some 570 grant overseers work at State, with more than 500 of them abroad. In many cases they are under-trained, and in virtually all cases overworked -- the alert cites one overseer who is managing 500 grants -- and they usually perform their oversight part-time while doing other Foreign Service jobs. Turnover among the overseers is high, which, the alert notes, “hampers the development of institutional memory.”

The continuing bureaucratic inaction, after numerous warnings about the lack of proper care for a pile of cash that by definition is bestowed without formal contracts, is the major reason behind the special warning sounded by the department’s aggressive new Inspector General, Steve Linick, who was appointed just more than a year ago.

Management alerts, an innovation under Linick, don’t break new ground but are intended to underline the “serious nature” of the issues involved, and flag the topmost reaches of the State Department about problems.

The current management alert is essentially a lengthy compilation of lapses, poor practices and inattention outlined in previous audits and inspections that have failed to spur managers into changing the situation, at least to the Inspector General’s satisfaction.

This particular alert goes further, by also citing a series of reports from the independent Government Accountability Office, or GAO, which run along similar lines.

In the most recent GAO report, published  in July, the outside watchdog noted  that a numbing array of State Department offices were authorized to hand out grants -- some 27 offices and bureaus, not to mention a wide variety of consulates and embassies.

Much of the cash, however, was spent by fewer than a dozen bureaus and agencies, including the Bureau of Educational and Cultural Affairs ($397 million in 2012), the Bureau of Population, Refugees and Migration ($352.6 million) and an office in the Bureau of Administration ($393 million).

GAO did not investigate all of the spending, but examined a sampling of about $172 million worth of grants and similar hand-outs by State in fiscal 2012. The result was not reassuring.

GAO’s bottom line:  A combination of poor and often missing documentation and “inadequate” analysis of the risks involved in handing out the cash meant that State “cannot be certain that its oversight is adequate or that it is using its limited oversight resources effectively.”

CLICK HERE FOR THE GAO REPORT

For example, GAO noted that none of the State Department risk-assessment checklists for evaluating grants mention corruption as a factor for evaluating whether to award a grant, even though side notes in a grant file might mention that corruption was rampant in the country where the money was being handed over.

Since corruption wasn’t on the official checklist, any observations about it did not factor into the overall determination of the riskiness of the grant -- nor did they show up “anywhere else in the grant file documentation,” the GAO observed.

Even when grant recipients themselves had bad records for prior financial mismanagement, the GAO report noted, grants were awarded “without addressing how the risk could be mitigated.” In many cases, over plans for how to monitor grants both for performance and for financial probity were simply missing.

The Inspector General’s alert found many of the same things in its own review of the inspection record. Only 6 of 37 files examined to see if they contained proper documentation to close out a grant award -- meaning that the project and the money had been properly accounted for -- had anything like the proper paperwork, the alert discloses.

Even worse, out of 60 sample files requested for inspection, “10 had been prematurely destroyed, 3 were missing and one was mislabeled.”  In another State Department office, intended to monitor and combat trafficking in persons, more than 280 grant awards “could not be closed out because of missing documentation.”

In all, the alert notes, “since 2013, nine inspections have identified grant documentation deficiencies.”

The lack of paperwork, the alert emphasizes -- citing its previous management alert on contracts for emphasis -- “creates conditions conducive to fraud, where corrupt individuals may attempt to conceal evidence of illicit behavior by omitting key documents from grant files.”

CLICK HERE FOR THE ALERT

What to do about it? Given the growing size of the problem, the Inspector General’s office saw the solution as relatively simple, starting with hiring more people to watch over the money.

The watchdog’s recommendations, addressed to State’s Under Secretary of State for Management, Patrick Kennedy, and Assistant Secretary of State for Administration, Joyce A. Barr, also called for more training, and a quality-control program that would sample the paperwork on grant projects to see that it was properly completed.

The results of the sampling, the alert said, should be fed back to the bureaus that handed out the cash, to ensure that overseers “are held accountable” for their performance.

The State Department’s response was also simple. All of the alert’s recommendations have been accepted. What that means, however, will take a while to tell.

To ensure that the number of grant overseers increases appropriately, the State Department says it will  create a portentiously-named Grants Human Capital Plan to match spending with oversight capability on a department-wide basis --something it has never done before.

The new plan, a State Department spokesman told Fox News, “will provide information needed by bureaus to request staff and funding to implement their individual needs, and allow the department’s management to review individual bureau requirements in an overall context.”

The grants planning mechanism will start grinding into action in fiscal 2015.

The department also has developed a “mandatory internal control documentation checklist” to be completed before any grant can be closed out, and created a new job -- the File Audit Coordinator -- to audit its treatment grant files.

Additional staffing will be “considered as needed,” the spokesman told Fox News -- not exactly an enthusiastic affirmation of the Inspector General’s concern about the size and importance of the State Department’s cash giveaway problems.

George Russell is editor-at-large of Fox News and can be found on Twitter: @GeorgeRussell or on Facebook.com/George Russell