A federal program that issues grants to promote democracy around the world has confused democracy with rampant free enterprise. Taxpayers' money has been used to make personal loans, buy office decorations and line pockets. In one case, federal grant money was used to help someone rent a car for use in a drug crime. That may be the American way, but it isn't democracy.

The National Endowment for Democracy was created by Congress in 1983. It receives federal tax money that it then spreads around in the form of grants to pro-democracy groups worldwide. A congressional investigation shows that NED is riddled with mismanagement and spending abuses. American taxpayers are being taken to the cleaners in the name of democracy. Our associate Scott Sleek obtained a copy of the investigative report, yet to be released by the General Accounting Office. It says the endowment has failed to keep track of where all the money goes. Some recipients have kept the interest earned on their grants instead of returning it to the government as they are required to do. They are also supposed to keep their NED money in separate accounts, but many grant recipients have not, making the money harder to track.We have investigated questionable practices at the NED ever since its inception, including high-priced junkets to exotic places and duplication of programs already being done by other federal agencies.

From 1984 through 1990, NED got about $152 million, which went into 533 grants. The NED board of directors has 16 members coming from labor, business, political parties, Congress and private organizations. The money is funneled to foreign groups through a handful of American private organizations. In the process the NED may have lost control over the money. The GAO found glaring examples of how the NED money is misused:

- Two recipients failed to prove how they had spent more than $38,000. In one case, the NED should have taken back $23,000 in unsupported expenses, but didn't. The recipient mixed NED money with other funds and then used the money for personal credit card payments and transfers into a personal checking account. In one case expenses were billed to the NED grant when they were already paid from other contributions to the organization. The recipient has since refused to repay the money and said NED would have to sue to get it back.

- An organization in Brussels has failed to pay NED any of the interest it has earned on $6.5 million in NED grants over the past five years.

The NED also skates on the edge of conflict of interest. Some of its members are top officials with the same groups that ask for grant money. NED rules require those people to abstain from voting on grants to their own organizations, but they are allowed to participate in the debate leading up to the votes.

Endowment officials defended their program saying that the GAO report exaggerated the problems and that in some cases the people who got the money simply misunderstood the rules, but didn't deliberately defraud the program.