US aid cuts to Ukraine raise risk of waste and fraud, say watchdogs

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WASHINGTON (Reuters) -USAID is concerned that the Trump administration’s cancellation of independent aid monitoring contracts for Ukraine has increased the risk of waste, fraud and abuse, according to three U.S. watchdog agencies.

“The termination of third-party monitoring contracts has further limited USAID’s ability to oversee programs,” the State Department, Pentagon and USAID inspectors general said in a report issued on Thursday.

The U.S. Agency for International Development was the main U.S. agency that administered civilian foreign aid for more than 60 years. It is being dismantled by the Trump administration and is scheduled to be closed on September 2.

The three inspectors general submit quarterly reports to Congress on their oversight of U.S. civilian support for Ukraine in its fight against Russia’s full-scale invasion launched in February 2022.

In January, President Donald Trump froze all U.S. foreign assistance programs pending a review of their alignment with his “America First” policies, and ordered the dismantling of USAID, which stopped disbursing funds in July.

As part of this decision, billionaire Elon Musk’s Department of Government Efficiency oversaw the termination of 83 percent of USAID programs, including some that supported Ukraine. 

The watchdogs’ report said that USAID managed $30.2 billion in direct support for the Ukrainian government’s budget, and provided a guarantee that secured a $20 billion loan for Kyiv.

It said that in the three months ending June 31, 25 civilian aid programs for Ukraine were terminated, while 29 active programs, five under stop-work orders and four of unknown status were transferred to the State Department.

The terminated programs included contracts with third parties that provided independent tracking of USAID funds to ensure that they were spent as intended and that helped “inform both current and future decision-making,” it said.

“USAID said that without independent monitoring, it cannot verify that programs are being implemented in line with award terms, increasing the risk of waste, fraud and abuse,” the report said.

This is especially true in conflict-affected areas “where there is a heightened potential for diversion of funds,” it warned. 

(Reporting by Jonathan Landay; editing by Clelia Oziel)