AGENCY FOR INTERNATIONAL DEVELOPMENT Washington, D.C. 20523
07e
OFFICE OF THE AUDITOR GENERAL
AREA AUDITOR GENERAL - EAST ASIA
AUDIT REPORT
OFFICE OF REGIONAL ECONOMIC DEVELOPMENT
REGIONAL EDUCATION DEVELOPMENT
PROJECT NO 498-1l-690 198
Period Covered by Audit: December 1966 through March 30 1975-
Audit Report No 8-498-73-54
Date Report Issued June 29, 1973 TABLE OF CONTENTS
Page
PART I - PURPOSE AND SCOPE ------1
PART II - BACKGROUND ------2
PART III - SUMMARY ------5
PART IV - STATEMENT OF FINDINGS AND RECOMMENDATIONS ------6
A - PROJECT EVALUATION ------6
B - PROCUREMENT ------12
1 - Source and Origin ------13 2 - Procurement Practices ------16
C - PROGRAMMING AND BUDGETING ------22
D - CONSTRUCTION PLANNING AND UTILIZATION ------24
1 - Use of RELC Building ------24 2 - Additional Construction ------31
PART V - GENERAL COMMENTS ------33
EXHIBIT A - List of RED Contracts ------34
EXHIBIT B - Distribution of the Audit Report ------35 AUDIT REPORT
OFFICE OF REGIONAL ECONOMIC DEVELOPMENT
REGIONAL EDUCATION DEVELOPMENT
PROJECT NO. 498-11-690-198
PART I - PURPOSE AND SCOPE
We have performed an interim comprehensive audit of the Regional Education Developmnent Project (Project Number 498-11-690-198) administered by the Office of Regional Economic Development Affairs (RED) of the American Embassy in Bangkok. The purpose of the audit was to review RED management effective ness in monitoring the project and to verify compliance with ag:ee ment terms and applicable AID regulations.
The audit included a review of records maintained by RED, USOM/Thailand, and Contractors; and discussions with officials of RED, USOM/Thailand, Contractors and Grantec. Visits were made to project sites in the Philippines, Singapiore, Indonesia, Malaysia and Thailand. We did not make a comprehensive exami nation of the Grantee~s books and records. However, we did review appropriate audit reports and supporting audit working papers of Sycip, Gorres, Velayo & Co. (SGV), the Grantee's audit firm, to ascertain the adequacy of expenditures of AID grants under the project.
Except for the TROPMED subproject, the audit covered the period from project inception (December 1966) thrcugh March 31, 1973. The audit period for TROPMED was from the previcus audit cut-off date, June 30, 1970, through March 31, 1973.
Significant matters disclosed by the audit Are presented in Part IV, Statement of Findings and Recommendations. Findings are summarized in Part III.
- 1 PART II - BACKGROUND
The purpose of the project was to assist in establishing and supporting a regional organization, the Southeast Asia Ministers of Education Organization (SEAMEO), for the purpose of promoting regional cooperation in education. SEAMEO was created in 1965 by the Ministers of Education of seven Southeast Asian countries: Indonesia, Laos, Malaysia, the Philippines, Singapore, and Vietnam (Khmer Republic joined later). The Organization includes the following parts:
Acronym Identification Location
SEAMEC Southeast Asian Ministers of Bangkok Education Council
SEAMES Southeast Asian Ministers of Bangkok Education Secretariat
BIOTROP Regional Center for Tropical Indonesia Biology
INNOTECH Regional Center for Educational Saigon Innovation and Technology (Temporarily Singapore)
RECSAM Regional Center for Education in Penang Science and Mathematics
RELC Regional English Language Center Singapore
SEAR CA Southeast Asian Regional Center Philippines for Giaduate Study and Research in Agriculture
TROPMED Regional Tropical Medicine and Bangkok Public Health (with national centers in mem ber countries)
ARCAFA Applied Research Center for Phnom Penh (planned) Archaeology and Fine Art3
- 2 The purpose of the Organization as expressed by the SEAMEO Charter is to promote cooperation among Southeast Asian nations through education, science, and culture. RED explained the scope of the project in narrower terms concerning education: "The long-range goal of the Organization is to acceler ate education development in the SE Asian region by:
(1) Creating quality regional institutions for train ing specialized, high level manpower, thus lessening the flow of students to countries outside the region with resulting brain drain;
,2) Identifying commcn educational problems which can be solved effectively through regional approaches and creating regional programs and centers to deal with these problems; and
(3) Encouraging exchange of personnel, mobilization of resources and facilities which can be shared, and establishment of effective communication among the educators in the region."
AID support to SEAMEO activities consists cf. (1) Financial support to some of the SEAMES activities (special conferences, seminars, work shops, fand raising). (2) Total (or nearly total) financial support for organiza tional and project development activities. (INNOTECH and BIOTROP are in this status).
(3) Approximately half of 5 year project costs for those projects which are approaching the implementaticn state (SEARCA, RELC, and RECSAM are in this status).
(4) Half of the operational costs of the TROPMED central office of the Central Cocrdinating Board and commodity support for the cooperating national centers.
- 3 2~k Hlf of the Special Funds costs for scholarships and eei.£n Cther project support costs for a five year period for each project.
(6) Advice and assistance through RED direct hire and RED persona] services contracts.
The financial status of the project as of March 31, 1973 is as follows:
Sub-Project Title Unliquidated Obligated Expenditure s Balance
RELC $ 3,005,550 $2,393,117 $ 612,433 TROPMED 1,952,005 1,910,615 41,390 SEARCA 1,952,639 1,770, 267 182,372 RECSAM 1,459,602 1,062,864 396,738 INNOTECH 1,559,297 1,135,210 424,087
BIOTROP 818,030 818,030 -
SEAMES 1,562,170 706,087 856,083
Total $12,309,293 $9, 796, 190 $2, 513,1C3
Exhibit A contains a listing of AID financed implementing contracts under the project.
- 4 PART III - SUM MARY
The audit disclosed that RED needs to develop a more systematic project analysis and should concentrate on more effec tive monitoring of the need, use, and value of AID resources.
We found that the project involved disparate activities and RED had not made a comprehensive evaluation of what development results from these activities (Part IV.A.). RED was unable to effectively monitor the substantial amount of AID financed commodities. This resulted in uneconomical procurement. (Part IV. B.). The programming methods of RED were not suited to comprehensive analysis of the cost components of AID assistance (Part IV. C. ). We found that hotel rooms, apartments and other facilities of an 18 story building, for which AID has contributed $2. 1 million for construction costs, were used by the project for public rental. As the project requirements for the Luilding were less than planned and the rental facilities were, consequently, greater than planned, we concluded: (1) that the activity did nct need additional AID financial qupport; and (2) that RED should not consider additional constructiLn financing until specif>' project needs have developed (Part IV. D.).
- 5 PART IV
STATEMENT OF FINDINGS AND RECOMMENDATIONS
A - PROJECT EVALUATION
Our audit disclosed that RED needed to make a comprehensive evaluation of the project in a manner that is systematic and documented. We fcund that three subprojects had been formally evaluated approximately t,\-w years prior to the audit, but we found no current documentation describing overall progress towards development objectives.
Evaluation is particularly importai.t for this project because the SEAMEO organization is evolving and programs are charig',g. The Non-Capital Project Paper (PROP) stated that the czmplEted project could nut be defined; it wA.uld have to evclve thr6gh the process of regional cooperationo As the pr.-ject e,-lves, h, wever, there should be observable benefits tc relate t- tli- tztal cost (approximately $12 million obligated from December, 1966 thr --agh March 1973, and an additinnal $10.6 rnilli-ii plani.ed thrugh FY 1975). It is appropriate, therefore, that RED make a c,mprehers ve assessment of what the project has accomplished and what addi tional AID assistance will accomplish.
Regional Education Development was designed t- be unlike other AID projects. Its goals are defined t7 inciu.de b-th dtvei'prnnt aspects and "regional cooperation"' or "regionalism". In the project's planning documents, RED prcojsed that the proj,.'t be evaluated for aspects cf regional ccoperatl,-) rather than f:-r definable products. Whether evaluation c.oncerns "reg'::nalism," Inb:tJ-ional development or both, however, the project should be systexnatically evaluated.
Evaluation will be diffiz1-.it because of the vagueness of the concept of regional ccopei atiurn and the broad areas of acti,--ty
- 6 that the project (SEAMEO) has assumed. For example, the original PROP for the project described a problem in education:
"The rapid development of knowledge in all fields has caughL the majority of se~Aor teachers and educators unprepared, so that massive in service training and upgrading are needed."
The problem of modernizing education systems is specifical?- addressed by three subprojects (centers): RELC for English language instruction; RECSAM for science and math education; and INNOTECH for innovation and technology in education systems. The other three subprojects are somewhat related to education, but directly involve research and training in fields of science. This is in accordance with the SEAMEO Charter which states that the purposes of the organization involve education, science, and culture. TROPMED is expanding national irstitutions for training and research in the field of tropical medicine. SEARCA is promot ing research in agricultural problems, and is sending scholars for graduate degrees to the University of the Philippines College of Agriculture. BIOTROP is exploring research projects involving practical applications of biology. A new subproject, ARCAFA which was approved by SEAMEO during the audit, will involve development in the field of archaeology. This was prcmoted by the Khmer Republic which has an interest in the restcration of Angkor Wat. SEAMEO has also explored possible projects in "Peaceful Uses of Atomic Energy" and "Social and Cultural Studies." While all of these fields are related in some rpanner to education, the scope of these subjects is enormous in an eight country regici having more than 200, 000, 000 people.
The first consideration in a RED evaluation should be what development areas conform with AID's priorities and what develop ment problems can SEAMEO handle effectively. We undei stand that RED is considering these questions on a continuing basis, and has not agreed to finance subprojects other than the original six centers. We also understand that the first considerat':n of RED was the establishment of SEAMEO as a regional organization. The organization has evolved to the point that RED should make a
- 7 comprehensive evaluation of all existing and proposed activities. RED can support the organization as a whole without supporting all of its activities.
A second area needing RED evaluation is the matter of effective and efficient application of AID resources. RED has expressed its interest in allowing the project to develop its own management systems which may differ from US procedures. This is a practical approach, in our opinion, but it does not eliminate RED's responsibilities for seeing that some kind of system is developed by the project which will assure that US resources are not wasted.
One example of the need to evaluate resource applications concerns US financed salaries for SEAMEO personnel. We found that each SEAMEO center had developed its own salary scale based on its own interests. SEARCA adopted an international scale, (United Nations rates, approximately $19, 000 - $21, 00) for its director, assistant director, and project leader. Although two of these individuals were local, the rest of the lccal adminis trative staff were on a local scale. The two non-local p-r-fessionals were paid at a rate, approximately $12, 0C0 to i 4, C03 which was the level SEARCA indicated it needed to recruit regi-.nal profes sionals. A similar type of professionals was needed at BIOTROP where salary offerings had been raised to approximately $4, CCD t $6, 000 (which is above host government levels by agreement with host government) in hopes of attracting regional scientists. As the US financed salaries at BIOTROP and shared salary costs at SEARCA, it would be in RED's interest to recommend to SEAMEO that it adopt a regional scale adequate for recruiting, but nct excessive.
Another US resource application that needs to be evaluated concerns scholarship funds. Almost all of the costs for tuiticn, housing, living expenses, and travel for SEAMEO regional train ing activities are supported by SEAMES Special Funds. The US finances 50% of Special Funds and is contributing $660, 003 per year for this purpose at the current level of operation. One of the objectives of the project was to:
- 8 "Create quality regional institutions fir training specialized, high level manpower, thus lessening the flow of students to countries outside the region with resulting brain drain."
We understand this to mean that students who are leaving the countries to find needed education should use regional institutions (SEAMEO) rather than non-regional institutions. The students that are leaving, however, are already financed (or sponsored). We found that students who already have funds to go abroad are going elsewhere, and SEAMEO centers are used almost exclusively by holders of SEAMEO scholarships.
The Thailand Civil Service Commission estimates that 16, 000 Thais are stud ing abroad at the present time and the numbers, at least for host government and foreign assistance sponsored students, are increasing. USIS in Thailand states that 5, 000 Thai students left the country last year to study in the United States. Whether these students are financed by national govern ment programs, USAID participant training programs or by other means, if they have financing to get education some should be going to SEAMEO centers in order for the project tomeet its objective. SEAMEO scholarships may allow more students to study in the region but it is not helping to divert those wh-) are already leaving the region. It is possible that SEAMEO institutions cannot attract independently sponsored students, and scholarships are nccessary to fill the classes, but this certainly needs to be evaluated. (Additional problems and recommendations cc-ncerniig eff.ctive and efficient application of US resources are discussed in subsequent sections of this report. )
A third consideration of evaluation should be cocrdlnatn of the project activities. BIOTROP and INNOTECH have been planning programs since 1968 in a status RED refers to as "Interim Operations." RED has financed most of Interim Opera tions at a cost of approximately $1, 600,000 for INNOTECH and approximately $800, 000 for BIOTROP.
INNOTECH could not begin development in its home base, Saigon, because of the Vietnam conflict. We were advised, how ever, that only three professionals from the INNOTECH staff
- 9 - have volunteered to move to Saigon in July, 1973, when the cer.ter transfers from Singapore. Whatever value may have been derived from the $1, 600, 000 cost, the institutional development is essentially invested in these three individuals. While fNNOTECH has been planning to begin its 5 year development program, UNESCO began designing its own regional project for innovation in education (Asian Programme of Educa tional Innovation for Development). UNESCO advised us that the subjects overlap, but program areas (when they are developed) need not, providing there is coordination. RED advised that tlt UNESCO project covers a somewhat larger region and emphasizes national projects more than INNOTECH plans to do. The exist ence of a closely related program is reason for evaluation of possible duplication of effort.
BIOTROP has been trying since 1968 to develop a program which will involve economic development through biology and, at the same time, not duplicate programs of SEARCA or TROPMED. This has been a problem because agriculture (SEARCA) and medicine (TROPMED) are the applied sciences (development oriented) derived from biology. RED contracted with a specialist who developed a program (approved December, 1972) which supposed is to avoid this difficulty. The new program involves different theoretical approaches, but the subjects, Tropical Forest Biology and Tropical Pest Biology are at least similar to Forestry, Entomology (insect science), Plant Pathology (diseases), Plant Ecology, and other studies of agriculture which are SEARCA subjects. As BIOTROP officials advised us they did not have SEARCA's research project proposals, the possibility of duplica tion of subjects and objectives should be evaluated.
RED advised that the project is evaluated continuously in day-to-day observation. While evaluation is always a part of project monitoring, we are concerned about a documented, com prehensive review of the project. RED is not using the AID documents for annual evaluation, but there is a fundamental requirement for some kind of documented evaluation.
- 10 The Foreign Assistance Act requires:
"In conducting programs under thi's chapter, the President shall conduct a continuous evalua tion of the effectiveness of development programs, both past and current, using modern management techniques and equipment so that experience gained in the development process may increase the effectiveness of current and future development programs. ",
We found that RED's documented observations of project activities were primarily contained in Memoranda to the File prepared after meetings or field trips. While Memoranda to the File provide useful historical information of operational activities they tend to be passive documents. Documents should be addressed to decision makers and should recommend AID posiaions 4 is-a-vis the project and its problems. RED project documentation does not, in our opinion, reflect critical assessment of the need, use, and value of US assistance.
Recommendation No. 1
We recommend that RED establish a systematic program of documented, comprehensive project evaluation.
- 11 B - PROCUREMENT
We found that SEAMEO personnel planned AID-financed commodity procurement which usually resulted in effective determination of requirements. SEAMEO or host government personnel also did most of the buying, but they were not skilled in the task of buying US products from US sources. We found, al so, that procurement was not effectively monitored by RED with the result that procurement practices were weak and involved e, ensive off-shore procurement and uneconomical procurement of U- source and origin.
We could not readily determine the total value of commodity purchases with US funds because RED did not have complete records and the centers purchased equipment out of various accounts only some of which included equipment as a distinct line item. We can, however, generalize three types of comnodity procurement.
Grants for Capital Funds, totaling approximately $4, 250, 000 (obligated), included a substantial commodity element. Commod ities related te construction represented approximately 60% of total construction costs according to one RED estimate. In addi tion to construction materials, peratEing equipment aid farnishIngs are designated under Cap.tal Funds grants. The Letter of Agree ment (L/A) for RELC Capital Funds included approximately $422, 000 for "Other Costs" identified as follows:
RELC furniture and furnishings $162, 000 RELC equipment 150,000 Library for RELC 50, O00 Telephones 26,640 Driveway, parking lot, etc. 33, 233
$421, 873
A second general category of SEAMEO procurement involves purchases made on an as-needed basis out of varicus funds avail able at the time including Operating Funds, Capital Yunds, Special Funds, and contingency funds. The SEAMEO financial system does not have an equipment line item under its operating funds
- 12 budget and althc=ugh RED may prcvide a spe-1-ic amount for equip ment in a L/A f r Operating Funds, that item I-ses identify in the SEAMEO systrn. Commodities may also lose identity in the L/A itself, wh':.n som The tliird ge-.neral categry r.f SEAMEO procurement involves equipment purchased fer coe su',prnject, TROPMED. Approxi mately $1, CE, ,?' has been obliga ed for equipment for TROPMED centers and approximately $80, C03 more is programmed through FY 1975. I - Source and Origin Each of the thiee general categories of SEAMEO procure ment handles the requ.irern int for US sounrce and origin differently. Commodities purchased under L/A's for Capital Funds are untied, i. e., they are net restricted t,- US source and origin (alth 'ugh relatively minor amnunts -f U'S equiprlent are purchased). Operating Fund L/A's restrict commodities to US source and ori gin, but in practice, commodities are often locally purchased (off-shore procurement). Medical equipneiit for TROPMED is usually of US source and origin unless ccvered by a waiver. With respect tu comnm-dities under Capital Funds, untying took place because local prccuxrement was originally planned under Special Letters of Credit (SLC) ar-angements, and although SLC's were dropped two and one half years ago, the local purchase pro vision has not been disc-ntiyued i: subsequent amendments to Capital Funds grants for SEARCA, RELC, and RECSAM. As the reason for local purchase was the SLC, the cancellation of SL removed that reason ar.d l:cal pu7rc-hase must n)w be considered off- shore procurement. - 13 In the case of RECSAM, SLC arrangements were discon tinued after the agreement was signed but before the construction contract was signed. AID/W considered the situation (Memo EA/RD, November 16, 1970) and recommended that costs "close to 100% of $557, 000" be financed thrcugh local currency purchased with dollars. It was explained that this would involve an estimated $302, 000 in locally manufactured commodities, $24, 000 in locally stocked commodities and $8, 000 in commodities of US source and origin. While this was approved in AID/W, it was stated that it "would cover the changeover from the use of SLC procedures to direct purchase of local currency by the USDO to meet agreed project costs." The changeover took place more than two years ago, yet new project agreements continue to amend the original (SLC) agreerneits providing for local purchase. The L/A for RECSAM was revised last on June 27, 1972, to provide for additional construction including $10, 000 for furnishings and projecting $304, 000 for equipment to be added in future amendments. RED advised us that they allow construction contractors to buy local commodities but restrict them from buying commodities not of local origin. This appears to be a wasted effort because both local and free-world origin are off-shore procurement. Furthermore, without the SLC provision we see no difference, in terms of balance of payments or US trade, whether US-financed center in Singapore uses Malaysian products or US-financed center in Malaysia uses Singapore products. In the discussion of procurement sources for RECSAM construction, AID/W advised RED, that it would need waivers for non-US source procurement for commodities not locally manu factured. We found that no waivers were issued, and, in fact, the construction contract, which AID/W approved, allowed local procurement of goods from other countries. The contract restricted procurement to US or Malaysian source (not origin) and further defined source to include commodities in Malaysia at the time of purchase. Therefore, any commodities (Free World was required) available on the local market were eligible. This ambiguous situation is further complicated by the fact that RED prepares Letters of Agreement for Operating Costs which 14 are restricted to US Source and Origin. Furnishings and equipment are not budgeted under operating costs in the SEAMEO accounting system, they are budgeted under Capital Funds. Consequently, procurement is tied for Operating Funds where commodities are generally not indicated (except for supplies), and untied for Capital Funds where most commodities are budgeted. There is more reason to restrict these major commodity costs under Capital Funds than there is to control the minor equipment and supplies under Operating Funds. SGV has identified procurement from Operating Funds which was AID financed but not of US source and origin, and not covered by waivers. In the SGV audit of RELC, SGV indicated all purchases from AID Operating Funds were of non-US source and origin. The total of these purchases were minor (approximately $28, 000), and a more efficient method of handling this situation to avoid the cost of issuing waivers could be to include provision in letters of agree ment allowing the purchase of minor commodities locally. We find that RED needs to determine What commodities should be controlled with respect to US source and origin and what commodities should be non-controlled or host country supported. The waiver process (which RED uses in some cases) consumes valuable administrative time, which, if not directed to high value procurement, is an excessively expensive control. Supplies and very small purchases do not justify the cost of control (or the cost of purchasing from US source and origin). However, we see no cause for exception from the general requirement that off-shore procurement of significant commodities be controlled. Recommendation No. 2 We recommend that RED review the USG commodity element in all project costs, establish a uniform policy for control of procurement source and origin, and identify what part of project comnodities should be AID supported and controlled, and what part will not be controlled or host cotntry supported. - 15 2 - Procurement Practices The one project activity which generally complied with US source and origin requirements, had problems of procuring US products economically. We found large-scale purchases of equipment of US source and origin for TROPMED. A total of $1, 766, 000 has been programed for TROPMED equipment through FY 1975 and AID obligating agreements have been rrade for approx imately $1,000, 000. While this procurement is reviewed by RED, we do not believe either RED or TROPMED have personnel trained to make economical procurement from US sources. We observed the procurement procedures of TROPMED and found them generally unsuited to procurement on the scale funded by AID. Normal procurement documentation, such as requisitions, purchase orders, specifications, bid solicitations, and receiving reports, were not used. The only documentation we found used was a pro-forma invoice on which the supplier stated his terms. Procurement was proprietary; the requester indicated the product he wanted or was accustomed to using and a supplier for that product was sought. Middlemen were used such as in-country dealers or sales agents who obtained an offer from manufacturers or supply houses in the US. Supply houses were also middlemen in that they were offering stock they had purchased or could purchase from producers. RED pointed out that middlemen were not commissioned agents, as payment was made in the US and any deals between the manufacturer and supplier were theircvn affair. The services of middlemen have a price, however, and this is reflected in the difference between the cost of their merchandise and the cost of items available through USG supply channels. For the first of two tests of TROPMED procurement, we selected eight line items for price analysis from the Bangkok, TROPMED equipment inventory which had arrived from the first AID grant. The selection was not random, because we wanted major items and we wanted some cross section of TROPMED procurement. Unit price comparisons with sources used by USOM/Thailand were as follows: - 16 USOM/TF Percentage TROPMED Sources Over Item Unit Cost Unit Cost USOM/T ITSOMT Sources Air Conditioner $ 351 $ 297 18% BUSH (TROPMED: 16,000 BTU, Philco-Ford) (USOM: 17,800-18,000 BTU, Westinghouse) Jeep, 4x4, CT-6 4,700 3,780 24% GSA Procurement 6 cyl, 232 CTD AM FM Radio-Amplifier 614 3801/ 627,1/ USOM Source not Fisher Model 505T with established. Turntable Model 502 See footnote 1/ Calculator, Friden 1,654 1,259 Model EC-1152 31% Federal Supply Schedule Binocular Laboratory 1,001 898 11% Microscope, American Federal Supply Schedule Optical, Model XL 10 BU with in-base illuminator Printing Calculator 3,243 3,065 6% BUSH Monroe !666 with Card Reader Leitz Dialux 3,625 NA Microsermany)comparable NA No US product (W. Germany) accord ing to waiver Station Wagon, Kingswood 3,096 2,2512 / (TROPMED: Holden-Australia) 38% Off-shore procurement (USOM: Ford-Australia) 1/ Check with Bangkok dealer for Fisher Radio International Inc. (dealer used by TROPMED) disclosed discount prices for US Government and Military Personnel: Model 505 - $299.96, Model 501 - $79.95 (502 not available). Similar prices may be available to US Government procure ment agent. 2/ USOM price $2,251 based on total $2,851, less options indicated not on TROPMED vehicle. Delivered price of vehicle without any accessories would be $2,137. - 17 The overall potential savings in TROPMED procurement is difficult to estimate because significant variables were present. The price differences are significant, however, in relation to a $1,766,000 level of procurement. We can cpnclude that most procurement through established, competitively priced, USG sources offers substantial savings. Moreover, AID policy and the TROPMED Letters of Agreement require competitive procure ment which involves using the best available source, In explaining to AID/W why AID/W need not review lists of TROPMED's proposed procurement, RED explained that over 90% of it is professional and scientific equipment and, "in no instance where professional or scientific equipment has been or is being requested have we had reason to question TROPMED's judgement." RED also stated: "While they may not know the exact source of procurement, especially within the US., they know what they need and have a good idea of its current price." These comments expressed RED's confidence in TROPMED's judgement in deter mining requirements for scientific equipment, and this confidence may be well founded, but it opens the question of TROPMED' s judgement about procurement sources. The fact that the equipment is scientific or professional does not imply that the procurement action is unique or that TROPMED's professional judgement extends to the procurement function, The scientific equipment TROPMED buys with AID funds is available (allowing exceptions) through established US Govern ment contracts with US manufacturers of medical and scientific equipment. For example, out of $168, 000 in property on hand in Bangkok from the first grant, we determined that there was approximately $60, 000 of equipment manufactured by American Optical Co. (microscopes and related items). All of this equip ment was available directly from the manufacturer under US Government Contract (Federal Supply Schedule Contract No. GS-005-07872). As the contract is open-ended, RED or TROPMED would not need to solicit bids or negotiate terms, Delivery terms (based on contract terms and USOM/T experience) are better than that offered by TROPMED's current supplier. TROPMED had paid its supplier approximately $9, 000 more than the USG Contract. - 18 Whereas TROPMED's prices were generally higher than manu facturer's list price, the USG Contract provided discounts of 13% to 20% from the manufacturer's price. The following are a few examples: TROPMED Manufacturers USG Contract Item Unit Cost List Price Price Microstar Phasestar $1,834.80 $1,703.00 $1,481.61 AO # L1O BU-P4 Spencer Stereoscopic 588.50 549.00 477.63 Microscope AO #28 LA Spencer Stereoscopic 776.60 724.00 629.88 Microscope AO #28 LX Spencer Stereoscopic 585.20 573.00 498.51 Microscope with Field Binocular AO #52 M-1 Stereoscopic Microscope 470.80 462.00 401.94 AO #58 J-1 Stereoscopic Microscope 449.40 490.00 416.50 Spencer Cycloptic with Magni Changer "M" AO #58 M-1 We did not make further tests except to review additional commodity lists to verify the general profile of commodities involved. While our knowledge of scientific equipment is limited, we noted that there is an entire library shelf at the USOM Logistics Office containing catalogs of US Manufacturers of medical and scientific equipment which is offered in small quantities at discount prices under Federal Supply Schedule Contracts. If TROPMED knows the item it wants, it is quite possibly available from this convenient, established source. - 19 There are other sources for US-financed procurement which should be considered by RED. Within the Federal Supply Catalog system standard medical anca chemical laboratory equipment is procured and stocked by a DOD agency, Directorate of Medical Material, Defence Personnel Support Center. Nonstandard medical material is assigned to the Army Medical Material Agency, Pacific, located in Okinawa. The DOD also has supply arrangement with US firms overseas under "Buy US Here" (BUSH) contracts. GSA is a source for more common commodities and other sources are available including excess property overseas. RED and TROPMED officials informed us that they have used GSA procurement occasionally, and unusual delays had resultec'. We observed, however, that TROP14ED equipment was generally intended for new facilities to be constructed by the host government. The construction was planned years in advance, and we found construction unfinished at the time of our visit. As a result, commodities could only be partially used. For example, two generators ($58, 000) purchased Jan. 13, 1972, had been delivered in Jakarta, but stored in crates in the open air because GOI had not appropriated funds for the building in which to place the generators. Procurement lead time, therefore, need not generally be a problem, as construction lead time is critical and construction coveis a longer period. RED advised us that it wants SEAMEO to develop its own management resources including procurement and property management. RED also advised us that it doesn't want to interfere with SEAMEO management prerogatives, but to allow the organiza tion to evolve without dependence on AID. We agree, except that AID has the option of providing commodities or money, and while certain procurement should be handled by project purchasing offices, other AID financed procure ment should be channeled through economical USG sources. RED has tacitly, if partially, recognized this in their procedure of reviewing commodity lists prior to TROPMED procurement, and in their practice of occasionally providing commodities to the project from USG procurement sources. However, commodities are monitored by education or program specialists who may not - 20 fully understand AID procurement requirements as a supply manage ment specialist would. As for the matter of developing the project staff, needed development does not necessarily result from the project's buying from US supply houses in order to satisfy the US source and origin requirement. For various reasons, routine procurement by project personnel using local cu-'rency is usually made from local suppliers and dealers (whether commodity origin is US, local, or other). Because of "elatively high costs of procurement processing through US procurement agents, it may be advantageous for SEAMEO to use local sources for supplies and certain equipment even if AID financed local currency is used. In any case, this determination requires the informed judgement of a supply expert who could also assist the development of project procurement practices. RED has primary responsibility for efficient and effective inputs of AID resource .. Since commodities are a major AID contribution to the project, we believe RED should have the capability of expert assistance in monitoring its commodities. In our opinion, US Government supply management expertise is needed to assit the project and to review commodity requests from the project (and, possibly, other RED Projects) to determine appropriate procurement channels. We do not view this as impeding SEAMEO's own procurement system (local purchase); but, rather, as the best way for RED to assure that AID's commodities are con tributed in an efficient and effective manner in accordance with the special requirements of AID. Recommendation No. 3 We recommend that RED obtain the scrvices of a supply management specialist(s) to advise and assist the development of the project's supply management capabilities and to review the AID commodity input, particularly with respect to selecting the best sources of supply. (Services should be tailored to the level and duration of RED commodity assistance and may be available from AID direct-hire, PASA, or support from USAID's in the region). - 21 C - PROGRAMMING AND BUDGETING The problem of identifying commodity costs in the project is syxfiptomatic of a general problem of identifying cost components in programming and budgeting project resources. Part of this problem may be due to the format of the Project Budget Submission which is not particularly suited to the somewhat special situation of RED, The consequences, however, are that the RED Project Budget Submission is not particularly meaningful or useful for management purposes and does not describe how cost components relate to overall project requirements, targets, and objectives. The RED Project Budget Submission for FY 1974 shows cumulative project costs of $11, 538, 000 through June 30, 1972, of which $9, 348, 000 are shown as "E. Other Costs ... 3. Contract." This category includes all local salaries (none are shown under "B. Local & TCN Personnel") and part of the commodity costs, although TROPMED commodities ($755, 000) are shown under "D. Commodities ... 3., Contract." The only other major cost element is US contract personnel ($1, 149,000). The problem we find with budgeting approximately 80% of the total as "Other Costs", is that it lumps most of the controllable cost elements into an unmanageable conglomerate. We observed that most costs on this project are local costs, i. e. , salaries, scholarships, and construction, which are not identified as such, As the US balance of payments problem involves AID's minimizing local costs wherevex possible, we believe local costs and non local costs such as US commodities should be identified. This would help in programming AID resources for sharing project costs. Cost components are also not distinct in Letters of Agree ment. These obligating documents are generated as needed and reflect various mixtures of cost components. We identified 99 Letters of Agreement and amendments to Letters of Agreement which is an unmanageable number in terms of comprehensive docu mentation of the project costs and resources. We believe a way should be found to consolidate project documentation and identify project cost oomponents on a composite basis. - 22 RED has indicated that the AID system of management documentation is not suited to their operations. To the extent this is true, RED should develop a system of its own. At the present time, we find no current documentation which accurately explains the systematic management of AID's resources in relation to project requirements, targets, and objectives. Recommendation No. 4 We recommend the RED develop a system of programming and budgeting for the project which provides management controls suitable to the RED operation. - 23 D - CONSTRUCTION PLANNING AND UTILIZATION Our review of RED's participation in the construction of the 18 story RELC - International House Building in Singapore indicates the need for better planning methods. As there are temporary alternatives to construction, such as borrowing or leasing space, we believe RED should consider AID financed con struction only when programs materialize (staffs, classes, scholarships, research) and when continued use of alternative facilities is not feasible, 1 - Use of RELC Building The US Government has obligated $2, 085, 000 for constructing (79% of 16 floors), furnishing and equipping a building for RELC in Singapore. We visited the center in February 1973, when it was well into its first year of permanent operations, and found that the planned capacities Of the building considerably exceeded the space requirements of RELC. At the time of our visit, RELC activities required part of six floors in the building. Planned and observed utilization of the building are explained in the following diagram: - 24 Floor Facilities F/ Source of Planned Use Observed Use- Financing 17th 8 Apartments Public Rentals 16th Staff Quarters (Except 1 apt.used USG by a staff member) 15th International House Regional Con 32 Double Bedrooms ference Rentals Public Rentals GOS 14th 13th 12th RELC scholars 26 for students llth and other indi- 2 for staff 96 Double Bedrooms viduals related 68 for public USG 10th to RELC 9th 8th 7th Commercial Offices Leases (for Commercial GOS 6th Special Funds Leases revenue) 5th Lecturer's offices Used by: Lecture rooms RELC educational 2 classes of 4th Educational Facili- activities 60 students and USG ties 9 instructors 3rd Admin. of RELC Admin. of 2nd Administrative RELC and Commercial and Commercial USG Offices Activities Activities lst- Auditorium, Con- Various SEAMEO and Public 50% GOS ference Complex Functions Functions 50% USG Ground Restaurants 1/ RELC publication indicates facilities are available for public if not used by RELC, but available space was partially used. - 25 Some revenue producing facilities have been planned for the building since the beginning of the project. It was agreed that GOS would finance the construction of a two floor International House and the revenue produaced from guest room rentals of this facility would help GOS underwrite operating costs of RELC which were supposed to match AID construction costs. However, we found that versions of the size of the International House kept changing. This is an extremely important factor because as the revenue producing operations grow larger in relation to RELC operations, the need for outside contributicns from one or mncre donors decreases and may even disappear. RED records show five versions cf what constitutes the RELC International House: (1) The PROP (November 21, 1969) stated that, "32 residential rooms called the International House ... will be rented to conference participants attending other regional conferences, thus creating income to meet part of the operational costs of the RELC." (2) Subsequent references to the 32 rooms did not mention conference participants but spoke of Interna tional House rental hotel rooms nn two floors. (3) A PAR covering RELC operations through FY 1970, stated: "It was estimated that income from the four floors of the International House would be sufficient to cover all operating expenses cf RELC, a powerful argument for inclusion of the revenue-producing facilities. " (4) In the opening ceremonies dedicating the build ing, the GOS representative stated that Singapore provided, "for the construction of the remaining 6 floors of this building occupied by the International House. " (5) In a recent RELC publication advertising the RELC International House, all but the four floors of administration and classes are described for rental except as required for RELC. - 26 The fifth version differs notably from ant.ther RELC publi cation explaning educational activities of RELC. In the description of the building as an educaticnal facility, all guest rooms and apartments are for personnel related to SEAMEO activities. The advertising brochure, however, adds the public to intended users of guest rooms and apartments. Also advertised for public rental are a conference complex accommodating 200 persons, a 220 seat auditorium ("Specially designed for ceremonial functions"), an exhibition gallery, and other reorns for rent or lease. RED protested the GOS ad-erLising the building's rental facilities in a letter to GOS, August 4, 1972: "Although it might inistake-nly be considered as water over the dam, I am sure you will recall the difficult time we had in the 'beginning stages of planning in getting agreement from Washington for the U.S. Government to share in the construction of a building which included both the educational facilities we were committed to finance and hotel type facilities for pro ducing revenue. The agreement was finally obtained, as you will recall, with the fTu7ll understanding, even though it is not spelled out word for word in the Letter of Agreement, that the re--euue-producing facilities would be finance-! separately, identified clearly, and managed in a way that would avoid any image or appearance that the U.S. Government was assisting the Government of Singapore in building a hotel. " We appreciate RED's concern about the advertising brochure, but this version of rental facilities is closest to the situation we found at RELC. RELC operating records showed that AID-financed apartments were leased to the public (except one of eight was used by an instructor), rooms on part of the six AID-financed floors were used for hotel rentals, and various facilities on two jointly financed floors were also rented or leased. Of 128 rooms, 26 were used by students at the time of our visit. This distribution should be about normal because the average student load is 49 in the RELC 5 -year budget and we were advised that some students prefer double - 27 occupancy and Singapore students live at home. (Thus, 26 rooms for 60 students at the time of our visit). The actual situation, therefore, is that the rental facilities of the building are much greater than planned and the need for additional outside assistance to RELC has reduced considerably. We examined the RELC Operating 1:come and Expenditure Statement for the July-December period (the building had been occupied less than one year). The statement showed that operating expenditures exceeded income by approximately $7, 000 out of a total expenditure of $142, 000 for the six month period, GOS, which had agreed to "underwrite" -operating costs for its part of matching, was obligated to provide $7, 000. The RELC income, which was nearly sufficient to cover costs in the six month period, was based on an extremely low level of rentals. Rooms not used by students were approximately 23% occupied compared to the budget estimate of 50%. We were advised that low rental rates were caused by problems of obtaining a hotel license and that these problems could be solved in the near future. RELC had budgeted income at rates lower than they later charged. Apartments budgeted at $600 (Singapore) per month were rented to the public for $1, 000. Hotel rooms budgeted at $24 per day (Singapore) (for singles) averaged $26 (including doubles). Student rentals which were to be $9 (Singapore) a day turned out to be $16, because, although $9 was the rate per student many students shared rooms or lived at home. We recalculated the budget based on actual rates charged and determined that additional income for the year (based on modest budgeted rental levels) would have nearly equaled projected GOS subsidy plus salaries (negating direct GOS contribution). Budget income is conjectural, however, dependent on efficient hotel operations and effective management. The point is that RELC is nearly financially self-sufficient and has greater income potential because of the unplanned revenue from AID financed facilities. It was expected that the income from four floors of the building would be sufficient to cover all operating expenses of RELC, according to one version of the International House. The problem that this poses is what happens to the additional, unplanned - 28 revenue generated from AID financed facilities? The Memorandum of Understanding for RELC states that any excess of income (from GOS financed I. H. facilities) over operational costs will be reserved for funding other SEAMEO projects in Singapore. Other projects are not defined and revenue from USG financed facilities is not mentioned. We found no clear or consistent understanding about what operating income would be used for matching. One version involved use of all income except tuition nd student rentals (from Special Funds, 50% provided by USG). This would require more than five years for matching, however. The latest estimate we found (July 5, 1972) was that five and one half years was required for non-USG matching of US input. We pointed out to RED that income from AID financed facilities is approximately equal to income from GOS financed facilities. Thus, income that is already matched in Operating Funds is used to match AID Capital Funds, and in effect AID matches itself. It is not reasonable to use income from the AID facilities to match the cost of those facilities Nor is it reasonable to exclude income from AID facilities, because if income from GOS financed facilities is used for matching, income from AID facilities should also be used for matching. Moreover, since AID facilities are greater, increased rentals would widenthe gap between AID and GOS contributions, We recognize that there are various ways to rationalize matching, We considered it important, however, to analyze these theories of matching in order to help RED recognioe a situation in which AID inputs should have ended. The Memorandum of Understanding for RELC states that the US share of total project costs shall not exceed 50% and plans would be adjusted if necessary to preserve the 50-50% relationship. Continued RED financial support to RELC is questionable in terms of development, The institution has potentially self sufficient finances with reasonably effective management. AID has provided more than its agreed 50% of project cost and - 29 Singapore would appear financially capable of meeting its share. Although the five year development plan is in its first year, the center is essentially developed. It has the classes, staff and facilities that will Ie maintained at a generally uniform level throughout the period. Reducing AID inputs, however, may be somewhat difficult. The Government of Singapore received title to the building, has not leased it to SEAMEO, and is apparently not obligated under Letters of Agreement to increase its financial support to RELC. We believe, however, that since revenue from AID financed facilities has not been mentioned in Letters of Agreement, RED might be able to apply this revenue to AID contributions. One way to do this would be to transfer a $50, 000 per year RED personal services contract to the RELC budget. The individual under contract is an instructor who could be transferred or replaced with an RELC contract of direct hire. A second step would be to reduce or eliminate the annual AID contribution ($131, 000 for FY 73) to RELC Special Funds (scholarships). RED advised that they had agreed to matching 50% of all Special Funds costs and that to change this for RELC might be difficult. We suggested, as one alternative, reducing or eliminating charges for student rentals and tuition. Student rentals were to cover maintenance costs according to the agreement. Maintenance costs have not been defined and cannot be identified because RELC does not segregate RELC costs and hotel costs (revenue producing operations). As these charges are arbitrary, therefore, they could be reduced or financed from revenue produced from USG financed facilities. Recommendation No. 5 We recommend that RED, in view of contributions that have been made to develop RELC and RELC's present condition of almost self-sufficiency, examine current AID assistance for RELC for the purpose of determining if an adjustment should be made to reduce or terminate further U.S. assistance. - 30 2 - Additional Construction The RELC building was planned for capacities greater than required for RELC activities This was at least partly caused by the fact that too little was known about actual requirements. The projected requirements (Memo to Files, February 10, 1969) were estimated to be 140 accommodations, but this could be constricted, according to the plan, to the 96 rooms to be constructed (exclusive of Internation House, 32 rooms). This would be accomplished by using some double occupancy or rooms outside the center. Classes were planned to be slightly smaller than they are today, but the number 140 was derived by considering many outside possibilities. Students were projected for three simultaneous classes although classes actually averaged slightly less than two at a time. Rooms for 48 possible additional personnel were planned such as research fellows, non-scholarship trainees; single staff members. The projection also added 20 rooms for a "reasonable allowance for expanded programs", The estimate seems plausible, however, based on the information available at the time, It also seems plausible that eight apartment might be needed for staff members, or that an auditorium for 220 or a conference complex for 200 might occasionally be used We do not question the possible requirements for these facilities, but it does seem more likely that facilities would be used if the facilities were designed for specific, known requirements. Some requirements cannot be anticipated. It was not anticipated, for example, that some students would prefer double occupancy or living at home or that instructors would prefer to find their own accommodations and that only one elected to use an apartment provided by AID on two floors of the building. We believe it would be more practical to let actual require ments develop and then provide construction as needed. Facilities can often be borrowed or leased until it becomes economically feasible to consider AID-financed construction. The RELC building is located in the hotel area of Singapore. RED, in a PAR for FY 1970: indicated that the likelihood of surplus funds from RELC's - 31 income producing facilities (International House) is not certain, "especially consdering a possible glut of hotel space in Singapore in the near future." This would suggest that RED might have questioned the need of using AID financial assistance for building hotel accommodations in Singapore. In more recent construction projects at SEARCA and RECSAM, RED has shown more restraint by financing buildings one at a time as the project develops. We found, however, that the AID financed staff housing at SEARCA was rented to the public, because the existing staff already had housing and addi tional staff had not yet been recruited. We also found that, while use of dormitorie s was approaching capacity at SEARCA and RECSAM, more dormitories were funded at SEARCA and more were under construction at RECSAM. Both institutions were having problems recruiting staffs and SEAMES was having problems expanding scholarship funds, so future housing require ments were uncertain. RED has made good use of temporary facilities loaned by host government institutions for interim periods until permanent facilities are available. Temporary facilities afford the oppor tunity to build staffs, classes and projects to the point that actual requirements materialize. While the RED approach to construc tion financing appears to be more conservative now than when it planned the RELC building, future construction planning should be based on known requirements for dormitories, classrooms, staff housing and other facilities provided alternative facilities can be used until construction requirements are specific. Recommendation No. 6 We recommend that RED plan future construction financing after projects develop to the point that specific requirements are known and borrowed or leased space is no longer available or feasible to use - 32 PART V - GENERAL COMMENTS An exit conference was held on June 8, 1973, with RED officials These officials generally concurred with the substance of the findings and recommendations. Corrective action had been taken by RED on eight audit recommendations contained in the prior Aud " Report No. 70-15, dated June 30, 1970 The GAO recently completed an audit of RED operations including this project No report has yet been issued by GAO. In a memorandum dated April 7, 1973, IGA commented on an observation it made at BIOTROP relative to unutilized commodities. RED has taken appropriate action to correct this situation, - 33 REGIONAL EDUCATION DEVELOPMENT EXHIBIT A PROJECT NO. 498-11-690-198 Contract Status as of March 31, 1973 Contract Accrued Contractor's Name Contract No. Contract Period Amount Expenditures 1. Decision Studies Group AID/ea 27-1 3/01/68 to 12/15/69 $ 153,287 $153,287 2. Donald M. Topping AID/ea 43 9/01/68 to 9/30/69 20,262 20,262 3. Lawrence J. Hagerson AID/ea 114 4/23/70 to 5/31/71 22,598 22,598 4. Clifford C. Little AID/ea 155 4/20/71 to 5/31/71 3,723 3,723 5. Arthur H. Livermore AID/ea-145 A-1 1/07/71 to 5/31/72 53,837 53,837 6. Charles Glenn King AID/csd-143 A-9 2/01/71 to 2/06/71 3,974 3,974 7. American Institute of Research AID 490-5-2 7/01/69 to 8/31/72 117,437 117,437 8. American Institute of Research 490-7-A-3 6/15/70 to 8/31/72 365,875 316,551 9. Dr. Roy P. Cherrier AID/ea-75A-2 7/18/69 to 7/31/74 126,145 118,224 10. Joseph M. Dashach AID/ea-158 A-I 6/21/71 to 6/21/73 63,200 41,579 11. Sycip, Gorres, Velayo & Co. AID-490-16 4/07/71 to 9/08/71 53,150 53,150 12. Sycip, Gorres, Velayo & Co. AID-490-18 4/01/72 to 6/30/73 17,440 15,857 $1,000,928 $920,479 - 34 REGIONAL EDUCATION DEVELOPMENT PROJECT No. 498-11-690-198 EXHIBIT B Distribution of the Audit Report No. of Copies IGA/W 1 AID/W AA/SA 1 SA/RD 1 SA/PPB 1 SA/MGT 1 PPC/RC 1 PPC/PME 1 PPC /PDA 1 PPC /DPR 1 SER/COM 1 AG/AUD 4 AG/IIS/Bangkok LA/Bangkok I USOM/Thailand Controller 1 AM/EMB RED 5 AG/EA Area Audit Office 5 Bangkok Residency 5 - 35