BOSTON — A year-long probe into USAID funding in Afghanistan found that Afghan subcontractors have been funneling millions of dollars in taxpayer money to the Taliban, according to a report obtained by GlobalPost.

The report concludes that Afghan subcontractors implementing a Local Governance and Community Development (LGCD) project funded by the U.S. Agency for International Development (USAID), were likely paying a “protection tax” to local insurgents, including the Taliban, of up to 20 percent off the top of development projects in remote areas where the Taliban effectively holds control.

At the rate of 20 percent, that would mean an estimated $5.2 million of USAID funds were “at risk of falling into the hands of insurgents,” the report states, through the protection racket in which the Taliban provided its own “security guards” for the project in Afghanistan’s Nangarhar province.

The probe offers merely a glimpse into what many aid experts and former aid officials who have worked extensively in Afghanistan believe is a widespread protection racket in which the Taliban extorts tens of millions of dollars a year from international development projects.

The findings also reveal a critical challenge facing the U.S. government in Afghanistan as it ramps up development aid in coordination with a stepped-up military operation against the Taliban this summer and fall.

The aid cannot be delivered without a secure environment and, as the USAID report suggests, security is too often poorly coordinated by Afghan subcontractors. This is particularly the case in remote corners where there is little monitoring of the projects and where aid is being rushed into areas where the Taliban still has control.

The section of the 17-page summary document titled “Discussion of Review Findings” states:

“The review revealed that Afghan subcontractors working on the LGCD project may have misused USAID funds to pay off Taliban insurgents in remote and insecure Taliban strongholds. By its very design and approach, the LGCD project may have contributed to the risk that USAID funds might fall into the hands of insurgents. [The firm Development Alternatives, Inc.] implements LGCD activities using subcontracts and sub grants, and the project relies on local communities that likely include Taliban insurgents or supporters … As a result, insurgents might demand payments from DAI or its subcontractors who work in those dangerous areas.”

The probe by USAID's Office of Inspector General, which funds several billion dollars a year into development projects in Afghanistan, focused on allegations surrounding Edinburgh International, a London-based private security firm with extensive contracts in Afghanistan.

The review found no indication that Edinburgh International had misused USAID funds or that it knowingly took part in any payments to the Taliban. However, the report found that Development Alternatives, Inc., which received a $349 million LGCD contract through April 2011 to implement projects, failed to sufficiently monitor subcontractors and sub grants for local projects where there were indications that employees were being extorted by the local Taliban for money.

The USAID review also found “indications of pervasive fraud in DAI’s LGCD office in Jalalabad and indications of endemic corruption in Nangarhar Province” and referred the findings to the Office of Inspector General’s investigative arm.

Steven O’Connor, a spokesman for DAI, a sprawling international development consultancy firm based in Washington, told GlobalPost in a telephone interview, “We take these allegations very seriously. We have already worked to address many of these concerns, and we are working closely with the inspector general to continue to address these concerns.”

In August 2009, GlobalPost first reported that this Taliban “protection racket” was taking place in Afghanistan development projects. U.S. officials confirmed that the probe was sparked the by findings of the GlobalPost investigation in its special report titled “Life, Death and the Taliban.”

"It was GlobalPost's reporting that reached Congress and it was Congress that contracted us to begin the review," said USAID Office of Inspector General's Chief of Staff for Congressional Affairs, Dona Dinkler.

Dinkler added, "We take these issues very seriously and we are going to continue to try and get to the bottom of this. This investigation will be ongoing."