EXCLUSIVE: State Department oversight of climate change spending abroad is a mess, watchdog reports

Inadequate oversight, lax bookkeeping, sloppy paperwork, haphazard performance agreements and missing financial documentation have plagued U.S. State Department spending of tens of millions of dollars to combat climate change, according to a report by State’s internal financial watchdog — and the problem could be much, much bigger than that.

The audit report, issued last month by the State Department’s Office of the Inspector General (OIG), casts an unflattering spotlight on a relatively obscure branch of the State Department that supervises climate change spending, and depicts it as over-extended in its responsibilities, unstaffed in critical monitoring posts, and more concerned with spending money than in monitoring its effectiveness.

The State Department branch is known as the Bureau of Oceans and International Environmental and Scientific Affairs and its Office of Global Change, or OES/EGC, which have become the nerve center of the Obama administration’s international climate change policy, and the epicenter of its foreign climate change spending, which continues to balloon despite serious economic problems at home.

The OIG report points to a host of lapses in the way OES/EGC has supervised climate change spending, based on what the OIG observed in a sampling of climate change projects between 2006 and 2010, when the overall spending tab amounted to some $214 million.

The OIG sampling involved $34 million of the total.

Click here for a list of sampled programs.

The picture painted by the OIG report is vigorously disputed by the State Department’s Assistant Secretary for Oceans and International Environmental and Scientific Affairs, Kerri Ann Jones, even as she accepted most of the OIG’s recommendations in her 10-page reply to the audit. Jones took over her post in August 2009, toward the very end of the period examined by the Inspector General’s office.

Since then, however, the situation may have gotten worse.

For one thing, the Obama administration’s spending on international climate change projects accelerated between 2010, when the OIG report ended its scrutiny, and mid-2012, when the report appeared — and continues today.

That spending spree has been based on its commitments at a variety of United Nations-sponsored climate change meetings, including the failed Copenhagen climate change conference in December 2009, and subsequent sessions in Mexico, South Africa and, most recently, the Rio + 20 U.N. summit conference on “sustainable development” in Brazil.

Through that process, the world’s developed countries have committed to spend some $30 billion annually on climate change projects in the developing world, with the U.S. a major contributor. (The first board meeting of a so-called Green Climate Fund that hopes to handle most of that money takes place starting on August 23.)

According  to a State Department website, the U.S. has contributed some $5.1 billion in climate change funding to developing countries in 2010 and 2011 alone, with additional money still pouring forth in 2012.

Among the lapses highlighted by the OIG in its sampling:

  • OIG looked at  seven of 19 program grants totaling $34 million, and discovered they contained no specific plans for monitoring the results. As the report demurely noted, “Without comprehensive monitoring of grants, the department may not always have reasonable assurance that federal funds were spent in accordance with the grant award; that the grant recipient performed program activities as dictated in the grant award; and that the program’s indicators, goals and objectives were achieved.”
  • So-called grant oversight officers whose responsibilities included developing the monitoring plans, also failed to provide written reviews of compliance with State Department reporting standards, along with a variety of other financial procedures. In some cases, there apparently weren’t enough oversight officers to go around; when three left their jobs, OIG found evidence that only one was replaced.
  • Oversight officers apparently didn’t do a lot of overseeing. The OIG discovered that actual visits to climate change sites were rare, and when they occurred, not much effort went into examining the actual paperwork involved. In one series of Indian cases examined by OIG, the officers’ reports “typically summarized meetings held with grantee officials where only the statuses of the programs were discussed.”
  • Requirements that grant recipients submit quarterly financial statements were apparently ignored, even though procedures called for cutoffs if the statements were not provided. The report cites an unnamed recipient in Hyderabad, India, who got two separate grants totaling $1.1 million: funding continued to be doled out throughout the project, even though the reporting requirements were completely ignored. And in other cases, even when quarterly reports were received, they were often flawed.
  • The same cavalier attitude toward reporting apparently applied even when projects ended. As the report discreetly puts it, overseers “did not always obtain the final reports needed to ensure that final deliverables were achieved, funds were reconciled, and proper closeout of the project was completed.”
  • One reason for this, apparently, is that reporting requirements for detailed results toward specific indicators — along with general goals and objectives — were not included in any of the seven grants examined by OIG. One of the missing indicators in a number of cases was the actual amount of greenhouse gases removed from the atmosphere by the project.

Click here for the complete report.

The lack of a written demand for specific, reported results in the case of State Department grants became even more dramatic when the Inspector General’s Office examined another important financing tool, known as a “climate change inter-agency acquisition agreement” — essentially, the employment of another branch of the U.S. government to carry out commitments State has negotiated in areas ranging from defense to health to legal education.

The acquisition agreements are common for the State Department, where non-diplomatic expertise can be in short supply. During the period examined by the OIG, State spent three times as much -- $115 million — on the agreements, versus $34 million on grants.

If anything, the OIG report says, the quality and quantity of financial and other reporting in the State Department’s hands for such agreements, was even worse than for outright grants.

Among other things:

  • In five acquisition agreements examined by the auditors, none contained  the required performance and financial reports “necessary for effective program monitoring in a timely manner.”
  • In four of the five cases, there was “no evidence” that the Bureau of Oceans had designated an oversight officer, as required. Indeed, OIG found evidence that the Bureau had conducted only one site visit -- in 2008 -- among all the sampled programs that used inter-agency exchange agreements, in this case involving a project carried out by USAID on the bureau’s behalf.
  • In that one case, the report says, the visit “did not include a review of receipts or other documentation for expenditures to substantiate financial progress or a review of documentation that supported performance reports submitted to OES/EGC and that served as evidence that activities had occurred.”
  • The only expenditures OIG could verify in all five inter-agency cases it examined were for travel costs. As the report starkly put it: “OIG was not provided any supporting documentation that could be substantiated for the majority of the recipients’ expenditures.” The report added that there was only “limited evidence” that Bureau of Oceans officials “had requested or reviewed supporting documentation to substantiate assertions made in the reports.”
  • In one specific case where OIG itself demanded the evidence from the contractor of the project, the only available documentation was the demands for payment from five sub-contractors. “OIG received no documentation to verify the expenses claimed or ensure that only authorized expenditures were charged to the project,” the report declares.
  • But while other U.S. government agencies may have been blurry about their supervision of the money they paid out on State’s behalf to other climate change contractors, they were highly specific — and highly expensive — when it came to the fees they charged for that role.

Starting in 2008, the OIG report notes, USAID, the U.S. government’s most active international helping agency, began charging a “General and Administrative Support Overhead Rate” of 23.7 percent for funds it administered under inter-agency agreements, including those in the climate change domain.

Thus, on two Indian grants totaling $10.5 million and administered by USAID over two years, the overhead fee was about $2 million. “Thus,” the report notes, “only approximately $8.5 million of the total was budgeted toward the execution of the [climate change] program.”

On examining the problem more closely, however, OIG discovered that the documentation wasn’t there because the Bureau of Oceans didn’t ask for it. The Bureau’s agreements with other agencies to carry out its work “did not include language that required recipients to maintain supporting documentation for financial expenditures and all pertinent achievements for purposes of substantiation.”

Or, as Assistant Secretary Jones put it in her letter reviewing the OIG report, when it comes to dealing with other Federal agencies, her Bureau provides only “guidance” on the details of performance reporting, while the agencies “are not required to perform project related accounting and are not subject to overhead auditing procedures.”

Click here for Jones' letter.

Overall, a State Department spokesman assured Fox News, in response to questions, the Bureau of Oceans is taking the OIG report and all its recommendations “seriously,” and is “working closely with the [State] Department in the development and implementation of new policies and procedures.”

The catch, however, is that in her letter, Jones promised to change many things more specifically — but only after officials located deeper in the State Department’s labyrinthine bureaucracy come up with “standardized policies for inter-agency agreements.”

And that could involve a much bigger problem. In discussing the lack of documentation with State Department officials early this year, OIG discovered that there are apparently no rules demanding that every part of the State Department handle and account for such inter-agency spending in the same way. And that includes “procedures for reviewing and approving agreements to ensure compliance with Federal and [State] Department requirements.”

The catch, therefore, is that OIG’s discovery about the Bureau of Oceans’ quirky and sometimes non-existent standards could be true across the entire State Department when it comes to inter-agency spending.

Or, as the inspector general’s report delicately put it, the accounting problems with climate change may “signify a Department-wide shortcoming, as inter-agency agreements may not be efficiently and effectively administered and managed in the areas of policy application, review and approval, and overall program management.”

That could mean discrepancies could involve much bigger bucks than have been examined so far, and well beyond the area of climate change.

According to OIG,  in fiscal 2010 and 2011 alone, the State Department transferred some $4.6 billion to other U.S. agencies to perform work on its behalf, ranging from USAID ($968 million) to Defense (1.358 billion) to Justice ($558 million).

Click here for an overall list of State Department inter-agency spending. 

And while a working group within the State Department’s Office of the Procurement Executive ponders the issue prior to providing “guidance” for changes in the rules, the current procedures — or lack of them — for spending the money, at least when it comes to climate change, will remain in place.

Click for more stories by George Russell