oversight

Major Management Challenges and Program Risks: U.S. Agency for International Development

Published by the Government Accountability Office on 2003-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Performance and Accountability Series




January 2003
               Major Management
               Challenges and
               Program Risks
               U.S. Agency for
               International
               Development




GAO-03-111
               a
A Glance at the Agency Covered in This Report
The U.S. Agency for International Development, an independent federal
government agency, is charged with implementing U.S. foreign economic and
humanitarian assistance programs. The agency advances U.S. foreign policy
objectives through three programmatic areas:
●    economic growth, agriculture, and trade;
●    global health issues, including HIV/AIDS and other infectious diseases; and
●    democracy, conflict prevention, and humanitarian assistance.
The agency works with a wide array of public and private partners to implement
its programs. It operates in more than 100 countries, with resident staff in
approximately 75 countries in 4 regions of the world: sub-Saharan Africa, Asia and
the Near East, Latin America and the Caribbean, and Europe and Eurasia. Agency
staff often labors in difficult environments and under evolving program demands.


The U.S. Agency for International Development’s Budgetary and Staff Resources

Budgetary Resources a, b                                               Staff Resources b
Dollars in billions                                                    FTEs in thousands

12                                                                      4
                                                  10.0

 9                                                                      3    2.7
                  8.6                 8.7                                             2.5
                            8.5                                                                 2.4                   2.4
                                                                                                         2.3

 8      7.8                                                             2


 4                                                                      1


 0                                                                      0
       1998      1999      2000      2001         2002                      1998     1999      2000      2001         2002
       Fiscal year                                                          Fiscal year
Source: Budget of the United States Government.

a Budgetary resources include new budget authority (BA) and unobligated balances of previous BA.

b Budget and staff resources are actuals for FY 1998-2001. FY 2002 are estimates from the FY 2003 budget, which
    are the latest publicly available figures on a consistent basis as of January 2003. Actuals for FY 2002 will be
    contained in the President’s FY 2004 budget to be released in February 2003.




This Series
This report is part of a special GAO series, first issued in 1999 and updated in
2001, entitled the Performance and Accountability Series: Major Management
Challenges and Program Risks. The 2003 Performance and Accountability Series
contains separate reports covering each cabinet department, most major
independent agencies, and the U.S. Postal Service. The series also includes a
governmentwide perspective on transforming the way the government does
business in order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies areas at high risk
due to either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency, or
effectiveness. A list of all of the reports in this series is included at the end of
this report.
                                                    January 2003


                                                    PERFORMANCE AND ACCOUNTABILITY SERIES

                                                    U.S. Agency for International
Highlights of GAO-03-111, a report to               Development
Congress included as part of GAO’s
Performance and Accountability Series




In its 2001 performance and                         USAID faces a number of performance and accountability challenges that
accountability report on the U.S.                   affect its ability to implement its foreign economic and humanitarian
Agency for International                            assistance programs. USAID has recognized that it needs to address these
Development (USAID), GAO                            problems and has made some progress, but further action is needed as
identified important management
                                                    follows:
issues facing the agency. The
information GAO presents in this
report is intended to help sustain                  •   Since the early 1990s, GAO has reported that USAID has made limited
congressional and agency attention                      progress in addressing its human capital management challenges. Some
on continuing to make progress in                       progress has been made, such as implementing annual foreign service
addressing these challenges and                         recruitment plans. However, the agency has not established and
ultimately overcoming them. This                        integrated a comprehensive workforce plan with its strategic goals and
report is part of a special series of                   objectives. Developing such a plan is critical due to a reduction in the
23 reports on governmentwide and                        agency’s workforce during the 1990s.
agency-specific issues.
                                                    •   USAID faces difficulties in identifying and collecting data that would
                                                        enable it to develop reliable performance measures and accurately
                                                        report the results of its programs. USAID has taken several steps to try
GAO believes that USAID should
                                                        to overcome these difficulties, such as holding training seminars in field
•    complete a workforce strategy                      missions. However, although USAID has made a serious effort to
     for its civil service employees                    develop improved performance measures, it continues to report
     and align its staff to                             numerical outputs that do not measure the impact of its programs.
     systematically support the
     agency’s mission, goals, and                   •   USAID’s ability to become a high-performing organization is also
     objectives;                                        affected by its information technology and financial management
                                                        challenges. USAID has recognized these challenges and has
•    improve its ability to develop                     demonstrated a commitment to address them, such as establishing a
     reliable performance measures                      structure for the acquisition of information technology and improving its
     that accurately report program
                                                        computer security deficiencies. However, USAID’s agency managers
     outcomes; and
                                                        continue to lack complete, reliable, and timely information needed to
•    make further improvements in                       make sound, cost-effective decisions. In addition, the agency has had
     its information technology                         long-standing financial management weaknesses and has been unable to
     systems, and ensure that its                       provide its managers with reliable financial information.
     financial management systems
     comply with federal                            USAID’s Major Challenges
     requirements.




www.gao.gov/cgi-bin/getrpt?GAO-03-111.

To view the full report, click on the link above.
For more information, contact Jess T. Ford at
(202) 512-4268 or fordj@gao.gov.
Contents



Transmittal Letter                                                                                                1


Major Performance                                                                                                 2

and Accountability
Challenges

GAO Contacts                                                                                                      17


Related GAO Products                                                                                              18


Performance and                                                                                                   20

Accountability and
High-Risk Series




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                       Page i                                                      GAO-03-111 USAID Challenges
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                           Comptroller General
                                                                                           of the United States




           January 2003                                                                                           Transm
                                                                                                                       taie
                                                                                                                        L lter




           The President of the Senate
           The Speaker of the House of Representatives

           This report addresses the major management challenges and program risks facing the U.S. Agency for
           International Development (USAID) as it works to carry out its foreign economic and humanitarian
           assistance programs. The report discusses the actions that USAID has taken and that are under way
           to address the challenges GAO identified in its Performance and Accountability Series 2 years ago,
           and major events that have occurred that significantly influence the environment in which the agency
           carries out its mission. Also, GAO summarizes the challenges that remain and further actions that
           GAO believes are needed.

           This analysis should help the new Congress and the administration carry out their responsibilities and
           improve government for the benefit of the American people. For additional information about this
           report, please contact Jess T. Ford, Director, International Affairs and Trade, at (202) 512-4268 or
           fordj@gao.gov.




           David M. Walker
           Comptroller General
           of the United States




                                     Page 1                                             GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges

              In our January 2001 management challenges report, we reported that the
              U.S. Agency for International Development (USAID) faced a number of
              performance and accountability issues that affected the efficiency and
              effectiveness of its programs.1 We reported that USAID’s human capital
              challenges affected its ability to effectively carry out its foreign assistance
              mission. In addition, we noted that USAID faced difficulties in identifying
              and collecting data that would enable it to develop reliable performance
              measures and accurately report the results of its programs. We also
              reported that USAID had not implemented an integrated information
              management system or improved its financial management systems to
              ensure that it has adequate internal controls.

              Since our 2001 report, USAID has continued to take the following steps to
              address these issues:

              • USAID developed a workforce analysis in June 2001 that highlighted
                several human capital challenges facing the agency, including the
                agency’s aging workforce and the resulting expected high rate of
                attrition due to retirement. The workforce analysis was submitted to the
                Office of Management and Budget as the first step in implementing the
                President’s initiative for agencies to restructure their workforces.
                Although some improvements have been made, workforce planning is
                not yet integrated into USAID’s strategic plans.

              • USAID has taken several steps to try to overcome its difficulties in
                developing reliable performance measures that accurately report
                program outcomes. For example, the agency is holding training
                seminars in field missions and has reported that more than 1,200 people
                have been trained either in programming or in performance
                management. However, USAID continues to have problems with the
                timeliness and reliability of performance measures.

              • USAID’s ability to become a high-performing organization continues to
                be affected by challenges in information technology and financial
                management. The agency has recognized that it needs to address its
                problems and has made some progress, but further action is needed.
                USAID’s information technology systems do not provide managers with
                accurate information, its processes for procurement of information


              1
               U.S. General Accounting Office, Major Management Challenges and Program Risks: U.S.
              Agency for International Development, GAO-01-256 (Washington, D.C.: January 2001).




              Page 2                                                  GAO-03-111 USAID Challenges
                      Major Performance and Accountability
                      Challenges




                         technology have not followed established guidelines, and its computer
                         systems need better security controls. Until USAID can fully resolve its
                         information technology issues, it will not be able to routinely provide
                         agency managers with the complete, reliable, and timely information
                         they need to make sound, cost-effective decisions. In addition, USAID
                         needs to continue to make improvements to ensure that its financial
                         systems comply with federal requirements and that the systems provide
                         reliable financial information.




Better Manage Human   Since the early 1990s, we have reported that USAID has made limited
                      progress in addressing its human capital management issues. In 2001, we
Capital               reported that these issues could affect its ability to deliver assistance
                      efficiently, specifically in postemergency humanitarian situations. A major
                      concern is USAID’s inability to establish and integrate a comprehensive
                      workforce plan with its strategic goals and objectives. Developing such a
                      plan is critical due to a reduction in the agency’s workforce during the
                      1990s and an expected high continuing attrition. For example, as of
                      September 30, 2002, 31 percent of USAID’s civil service workforce and 54
                      percent of its U.S. foreign service employees were eligible to retire



                      Page 3                                            GAO-03-111 USAID Challenges
                         Major Performance and Accountability
                         Challenges




                         immediately or by September 30, 2007. USAID has acknowledged that
                         workforce planning remains a challenge for the agency, especially since
                         downsizing and budgetary constraints during the 1990s took precedence
                         over strategic workforce planning.



Lack of Comprehensive    USAID has not integrated a comprehensive workforce plan with its
Workforce Plan Affects   strategic goals and objectives. As its U.S. direct-hire staff levels have
                         declined, USAID has had to evolve from an agency that directly implements
USAID’s Human Capital    projects to one that plans and monitors them. Mission directors have
Management               become increasingly reliant on other types of employees, such as personal
                         service contractors, to manage mission projects implemented by third
                         parties. For example, as of September 2002, foreign personal service
                         contractors made up approximately 60 percent of USAID’s workforce and
                         U.S. direct hires made up about 26 percent of its workforce.2 (See fig. 1.)
                         USAID’s workforce includes several other employment categories, such as
                         U.S. personal service contractors and foreign national direct hires.




                         2
                          Foreign personal service contractors are non-U.S. citizens contracted by the U.S.
                         government. U.S. direct hires are U.S. citizens employed under the civil or foreign service
                         personnel systems.




                         Page 4                                                        GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges




Figure 1: USAID Workforce Profile, as of September 2002




Notes:
“Other” includes fellows and those employed under participating agency service agreements and
resource support service agreements.
This figure excludes the Office of the Inspector General.


Also, as figure 2 shows, USAID has had to adapt to a significant decrease in
the number of its U.S. direct-hire employees over the past 12 years while
continuing to take on new responsibilities. For example, as funding levels
remained relatively stable, the number of U.S. direct hires decreased from
3,262 in fiscal year 1990 to 1,947 in fiscal year 2000. In fiscal year 2001, the
agency saw its first increase in U.S. direct hires in more than a decade, and
current employment of U.S. direct hires is close to the agency’s target level
of approximately 2,000. In addition, USAID reported that employment
targets for fiscal year 2002 were not met because of a late start in
recruiting, a lack of medical or security clearances for new hires, and
insufficient qualified candidates.




Page 5                                                           GAO-03-111 USAID Challenges
                                          Major Performance and Accountability
                                          Challenges




Figure 2: USAID U.S. Direct-Hire Workforce Trends, Fiscal Years 1990 through 2002, and Program Funding Levels, Fiscal Years
1990 through 2002




                                          Notes:
                                          Workforce data exclude the Office of the Inspector General.
                                          Program funding information is in constant fiscal year 2002 dollars.
                                          Program funding includes money appropriated to the U.S. Department of Agriculture for Title II, and
                                          Title III food programs administered by USAID. Fiscal year 1990 also includes Title I funding, but after
                                          January 1, 1991, the funds were administered by the U.S. Department of Agriculture.
                                          Program funding also includes supplementals.
                                          Program funding does not include operating expenses and is not adjusted for
                                          deobligations/reobligations, rescissions, transfers, or miscellaneous trust funds.




                                          Page 6                                                                 GAO-03-111 USAID Challenges
                           Major Performance and Accountability
                           Challenges




                           Developing a comprehensive workforce plan is critical for USAID given the
                           reductions in personnel during the 1990s and the high number of
                           employees eligible to retire. According to the Inspector General, the steady
                           decline in the number of foreign service and civil service employees with
                           specialized technical expertise resulted in an insufficient number of
                           personnel with needed skills and experience.3 Further, the Inspector
                           General also reported that less experienced personnel are managing
                           increasingly complex overseas programs. In addition, these issues affect
                           USAID’s ability to effectively carry out its programs. For example, we
                           reported in July 2002 that insufficient numbers of contract officers initially
                           affected USAID’s ability to deliver reconstruction assistance in Central
                           America and the Caribbean.4



Corrective Actions Under   Recognizing these problems, USAID started implementing annual foreign
Way                        service recruitment plans that enable the agency to replace the number of
                           employees who are departing through attrition or retirement. In June 2001,
                           USAID also submitted to the Office of Management and Budget a
                           workforce analysis that addressed issues such as the agency’s aging
                           workforce and the expected high rate of attrition due to retirement. In
                           addition, the agency began hiring junior foreign service officers and
                           recruiting civil service professionals in key skill areas, such as information
                           technology, financial management, and contracting. USAID also increased
                           external training for senior managers and developed internal training
                           programs in leadership, operations management, supervisory skills, and
                           performance management.

                           USAID is addressing its lack of flexibility in reassigning staff and hiring
                           personal service contractors in postemergency situations. In mid-2000,
                           USAID’s Bureau for Latin America and the Caribbean drafted a “lessons
                           learned” analysis of the disaster recovery program’s start-up and offered
                           recommendations for changes needed for a similar response in the future.
                           The USAID Administrator subsequently formed the Emergency Response
                           Council to conduct an agencywide review of its experiences with
                           international emergencies. In December 2001, the council proposed several

                           3
                           USAID Office of the Inspector General, Semiannual Report to Congress (Washington, D.C.:
                           Oct. 31, 2001).
                           4
                            U.S. General Accounting Office, Foreign Assistance: Disaster Recovery Program
                           Addressed Intended Purposes, but USAID Needs Greater Flexibility to Improve Its
                           Response Capability, GAO-02-787 (Washington, D.C.: July 24, 2002).




                           Page 7                                                    GAO-03-111 USAID Challenges
                      Major Performance and Accountability
                      Challenges




                      program and procedural reforms to provide more flexibility in planning and
                      implementing activities in postcrisis or postemergency situations. In May
                      2002, the USAID Administrator approved the council’s recommendations in
                      the areas of strategic planning and programming, funding alternatives, and
                      staffing.

                      To overcome staffing constraints in postemergency situations, a USAID
                      working group identified several existing mechanisms that could make
                      human resources more readily available for design, implementation, and
                      oversight. For example, in June 2002, USAID reported that the working
                      group identified two existing contracting mechanisms for procuring short-
                      term services and staff. In addition, to facilitate the availability of USAID
                      staff for reconstruction activities, the agency has contracted with a firm to
                      establish a skills database of all agency personnel that would be available
                      on short notice for deployment to the field.

                      USAID has taken several steps to improve its human capital management,
                      but according to the Office of Management and Budget, much remains to
                      be done. For example, the agency has to complete a workforce strategy for
                      its civil service employees and align its staff to systematically support the
                      agency’s mission, goals, and objectives. To help assist USAID with its
                      human capital concerns, the Inspector General is conducting audits of the
                      agency’s human capital management. In addition, we are currently
                      conducting a comprehensive review of USAID’s workforce planning and
                      management.



Develop Better        USAID continues to face difficulties in identifying and collecting the data
                      that will enable it to develop reliable performance measures and accurately
Performance Data to   report the results of its programs. Our work, and that of the USAID
Assess Its Programs   Inspector General, has identified a number of problems with the annual
                      results data that USAID’s operating units have been reporting. USAID has
                      acknowledged these concerns and has undertaken several initiatives to
                      correct them. Although USAID has made a serious effort to develop
                      improved performance measures, it continues to report numerical outputs
                      that do not measure the impact of its programs.




                      Page 8                                             GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges




The Government Performance and Results Act of 19935 requires federal
agencies to prepare performance plans that set program goals, measure
program performance against those goals, and report on programs’
progress. In 1995, USAID developed a performance reporting system that
monitored the progress of a program, process, or activity toward its
objective over time. USAID’s performance monitoring system required
managers to (1) establish performance indicators, (2) prepare performance
monitoring plans, (3) set performance baselines, (4) collect performance
data, and (5) periodically assess data quality. As reported by the Inspector
General in April 2002, however, USAID continues to struggle to develop
performance measurement and reporting systems that meet internal and
external reporting requirements.6

Recent Inspector General reports have noted inadequacies in the quality of
the data reported as well as areas for improvement in the performance
monitoring plans of individual operating units. For example, a 2001
Inspector General report concluded that all seven of the units audited
needed to improve their performance monitoring plans; in one case, a unit’s
plan had not been updated since 1995.7 In addition, USAID’s data for
performance management reports are not current, covering the previous
year rather than the year under review. For example, in reviewing USAID’s
fiscal 2001 consolidated financial statements, the Inspector General
reported that program results related to years prior to fiscal 2001, not to
fiscal year 2001 itself. Although, the reported results were based on the
operating units’ self-assessments of programs meeting certain strategic
objectives, USAID did not disclose which or how many strategic objectives
were not reported or assessed.

Without accurate and reliable performance data, USAID has little
assurance that its programs achieve their program objectives and related


5
P.L. 103-62.
6
 In fiscal 2002, USAID changed its reporting requirements and a new annual report replaced
the Results Review and Resource Request reports that had been a significant part of
USAID’s performance management system. According to USAID, the new report is
supposed to provide a simplified reporting format for other required agency reports,
including a streamlined Congressional Budget Justification. Since this is a recent reporting
change, we cannot determine whether it is an improvement.
7
 USAID Office of the Inspector General, Audit of Performance Monitoring for Indicators
Appearing in Selected USAID Operating Units’ Results Review and Resources Request
Reports, 9-000-01-005-P (Washington, D.C.: Sept. 27, 2001).




Page 9                                                       GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges




targets. In July 1999, we commented on USAID’s fiscal year 2000
performance plan and noted that because USAID is dependent on
international organizations and thousands of partner institutions for data, it
does not have full control over how data are collected, reported, or
verified. Further, in April 2002, we reported that USAID had conducted few
evaluations of its experience in using various funding mechanisms and
types of organizations to achieve its objectives around the world.8 Some of
the essential information that USAID would need to conduct such
evaluations, such as data on the types of implementing organizations,
funding mechanisms, and objectives in its various program areas and
bureaus, is not complete or sufficiently detailed. We concluded that with
better data on these aspects of the agency’s operations, USAID managers
and congressional overseers would be better equipped to analyze whether
USAID’s mix of approaches takes full advantage of nongovernmental
organizations to achieve the agency’s objectives.




8
 U.S. General Accounting Office, Foreign Assistance: USAID Relies Heavily on
Nongovernmental Organizations, but Better Data Needed to Evaluate Approaches,
GAO-02-471 (Washington, D.C.: Apr. 25, 2002).




Page 10                                                 GAO-03-111 USAID Challenges
                           Major Performance and Accountability
                           Challenges




                           For some activities, developing performance indicators and assessing
                           results are inherently difficult. According to the Office of Management and
                           Budget, numerical output does not indicate the quality of the program, and
                           USAID needs to improve its ability to use this information for decision-
                           making. In 2001, we reported that, historically, USAID has not spent much
                           effort on assessing the results of its democracy and governance programs,
                           including its subsectors, such as rule of law programs.9 For example, in
                           April 2001, we reported that the results of USAID’s rule of law projects in
                           the new independent states of the former Soviet Union were not always
                           apparent.10 Most of the USAID projects we reviewed were reported in
                           terms of project outputs instead of results and sustainability. For 6 of the 11
                           major projects we reviewed in Russia and Ukraine, available
                           documentation indicated that implementers reported project results almost
                           exclusively in terms of outputs. These outputs included the number of
                           USAID-sponsored conferences or training courses held, the number and
                           types of publications produced with project funding, or the amount of
                           computer and other equipment provided to courts. Short-term measures
                           and indicators alone do not enable USAID to monitor and evaluate the
                           sustainability and overall impact of the projects.



Corrective Actions Under   USAID has taken a number of steps to correct the problems with its
Way                        reporting of performance results. In fiscal 2000, USAID revised its
                           automated directives system by rewriting policy guidance on strategic
                           planning, program implementation, and performance management and
                           reporting. In June 2000, we reported that USAID had made progress in
                           establishing outcome-oriented goals and developing indicators and targets
                           that help measure overall results.11 In January 2001, we reported that
                           USAID’s corrective actions included (1) developing and disseminating lists
                           of indicators that can be used by its overseas offices seeking appropriate
                           tools to measure performance, (2) sending annual reporting guidance
                           cables to operating units on the types of data needed and the
                           documentation required, (3) expanding the publication of supplementary


                           9
                           GAO-01-256.
                           10
                            U.S. General Accounting Office, Former Soviet Union: U.S. Rule of Law Assistance Has
                           Had Limited Impact, GAO-01-354 (Washington, D.C.: Apr. 17, 2001).
                           11
                            U.S. General Accounting Office, Observations on the U.S. Agency for International
                           Development’s Fiscal Year 1999 Performance Report and Fiscal Years 2000 and 2001
                           Performance Plans, GAO/NSIAD-00-195R (Washington, D.C.: June 30, 2000).




                           Page 11                                                  GAO-03-111 USAID Challenges
                         Major Performance and Accountability
                         Challenges




                         guidance to missions on managing data for maximum quality and utility,
                         and (4) holding training seminars for field officers on managing for results.
                         USAID continues to implement these solutions. For example, USAID
                         reported that in fiscal year 2001, 750 personnel were trained in the
                         overview course on USAID programming policies and nearly 500 had
                         received performance management training.

                         The Office of Management and Budget also reported in fiscal year 2002 that
                         USAID made progress in developing a systematic approach to performance
                         measurement; however, challenges remain. The structure, included in the
                         agency’s annual performance plan, includes agency-level indicators of
                         general performance, such as increased economic growth, reduced rates of
                         HIV/AIDS, free and fair elections, and lower mortality rates in disasters. In
                         addition to monitoring performance related to these higher level outcomes,
                         USAID missions track “intermediate results” that are more directly linked
                         to its programs. Examples include the number of small businesses
                         receiving USAID-supported loans or the number of people receiving
                         emergency food relief. However, these numerical outputs do not measure
                         how well a program functions.

                         In 2001, USAID’s Bureau for Policy and Program Coordination worked
                         closely with the Office of the Inspector General to develop an appropriate
                         performance management audit methodology for providing guidance on
                         needed improvements. However, USAID continues to struggle with
                         developing performance measurements and accurately reporting the
                         results of its programs. For example, in fiscal years 2001 and 2002, the
                         Inspector General conducted eight performance audits of selected
                         HIV/AIDS programs and in all instances found weaknesses at the mission
                         level.



Address Additional       USAID faces other agencywide challenges that hamper its ability to
                         become a high-performing organization. These challenges are to (1)
Challenges to Building   improve its information technology systems and (2) provide managers with
a High-Performing        reliable financial information. USAID has recognized these challenges and
                         has demonstrated a commitment to address them.
Organization

Enhance Information      USAID’s information systems do not provide managers with the accurate
Technology Systems       information they need to make sound and cost-effective decisions. The
                         USAID Inspector General has reported that its processes for procuring



                         Page 12                                            GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges




information technology have not followed established guidelines, which
require executive agencies to implement a process that maximizes the
value and assesses the risks of information technology investments. In
addition, USAID’s computer systems are vulnerable and need better
security controls. USAID management has acknowledged these
weaknesses and the agency is making efforts to correct them.

The information systems at USAID do not fully support its planning and
reporting requirements. According to the Inspector General, USAID
managers have had difficulty in consistently obtaining timely, reliable, and
complete financial and performance data. In 2001, we reported that USAID
did not have an integrated information management system to effectively
manage its programs.12 To correct this weakness, the agency has deployed
a new financial management and accounting system at its headquarters.
However, the Inspector General reported that system users were not
always able to readily obtain data to manage operations because USAID
focused its limited resources primarily on implementation and operations
rather than on reporting. To address this concern, the agency has begun to
implement a user-friendly reporting tool and plans to focus more on
reporting.




12
     GAO-01-256.




Page 13                                            GAO-03-111 USAID Challenges
                          Major Performance and Accountability
                          Challenges




                          According to the Inspector General, USAID’s processes for procuring
                          information technology have not followed established federal guidelines.13
                          In addition, in 2001, we reported that USAID did not have a process for
                          prioritizing information technology investments. Without such a process,
                          the agency is at risk of allocating resources for projects that do not
                          minimize risk and maximize return on investment. To assist in correcting
                          this weakness, the agency established a structure for the acquisition of
                          information technology. USAID’s Business Transformation Executive
                          Committee, staffed with senior management members, is tasked with
                          recommending, coordinating, and overseeing agencywide investments in
                          information technology. The committee also is tasked with ensuring that
                          the agency has reliable systems that provide the information its
                          management needs to make informed decisions and facilitate compliance
                          with legislative requirements. The Inspector General continues to monitor
                          USAID’s progress, but more work is needed. For example, the Inspector
                          General conducted a review of software development practices and
                          recommended that USAID’s overseas missions (1) develop policies and
                          procedures for controlling the installation of software, (2) develop a
                          process to maintain a current inventory list, and (3) conduct an inventory
                          of locally developed software and submit it to headquarters.14

                          USAID does not have adequate computer security controls in place to
                          mitigate the risks to its critical information systems. In 2002, the Office of
                          the Inspector General reported that computer security deficiencies expose
                          USAID resources and data to loss, theft, alterations, or destruction.15 To
                          improve its computer security, the agency has taken steps that include
                          updating security policies and expanding security training. However, more
                          work is needed to ensure effective security.



Improve Financial         Although USAID has improved some areas of its financial management, it
Management Capabilities   needs to make additional improvements to produce timely and accurate



                          13
                            The Clinger-Cohen Act of 1996 requires executive agencies to implement a process that
                          maximizes the value and assesses management risks involved in information technology
                          investments.
                          14
                           USAID Office of the Inspector General, Semiannual Report to Congress (Washington,
                          D.C.: Oct. 31, 2002).
                          15
                               See footnote 14.




                          Page 14                                                     GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges




financial information for use by USAID managers in carrying out the
agency’s programs around the world.

Fiscal year 2001 marked the first time that the USAID Inspector General
was able to express an opinion on three of USAID’s financial statements—
the Balance Sheet, Statement of Changes in Net Position, and Statement of
Budgetary Resources. However, the opinions were qualified and achieved
only through extensive efforts to overcome material internal control
weaknesses. Thus, the progress made is not necessarily sustainable.
Further, the Inspector General remained unable to express an opinion on
USAID’s Statement of Net Cost and Statement of Financing, because the
agency’s financial management systems could not produce accurate,
complete, reliable, timely, and consistent financial statement and
performance information. USAID’s inadequate accounting systems make it
difficult for the agency to accurately account for activity costs and measure
its program results.

In 2002, the Inspector General continued to report that USAID’s financial
management systems do not meet federal financial system requirements.16
Currently, USAID uses a variety of nonintegrated systems that require data
reentry, supplementary accounting records, and lengthy and burdensome
reconciliation processes. In an attempt to mitigate this long-standing
problem, USAID recently deployed an off-the-shelf accounting system as a
component of its financial management system. However, USAID still lacks
a fully integrated financial management system and places a greater
reliance on manual processes, such as reconciliations, because data for the
same transactions are entered into multiple systems.

The Inspector General also reported in 2002 that while USAID had made
improvements in its processes and procedures, it still has several material
weaknesses and reportable conditions concerning internal controls that
impair the integrity of its financial information. Specifically, the Inspector
General reported that USAID’s material weaknesses include

• financial systems that did not meet federal financial systems
  requirements, applicable federal accounting standards, and standard
  general ledger requirements at the transaction level;


16
   USAID Office of Inspector General, Report on USAID’s Consolidated Financial
Statements, Internal Controls and Compliance for Fiscal Year 2001, No. 0-000-02-006-F
(Washington, D.C.: Feb. 25, 2002).




Page 15                                                   GAO-03-111 USAID Challenges
Major Performance and Accountability
Challenges




• internal controls that did not provide reasonable assurance that the
  Fund Balance with Treasury accounts were accurate and reliable; and

• advances to grantees that were not properly controlled.

The Inspector General also reported that the agency needs to improve its
process for recognizing and reporting accounts receivable and its internal
controls over the processing of accounts payable at overseas missions.

Effective financial systems and controls are necessary to ensure that
USAID management has timely and reliable information to make effective,
informed decisions and that assets are safeguarded. USAID has made
progress in correcting some of its systems and internal control deficiencies
and is in the process of revising its plan to remedy financial management
weaknesses as required by the Federal Financial Management
Improvement Act of 1996.17 To obtain its goal, however, USAID needs to
continue its efforts to resolve its internal control weaknesses and to ensure
that the planned upgrades to its financial systems are in compliance with
federal financial system requirements.




17
     P.L. 104-208.




Page 16                                            GAO-03-111 USAID Challenges
GAO Contacts




               Subject(s) covered in this report           Contact person
               Better manage human capital                 Jess T. Ford, Director
                                                           International Affairs and Trade
               Develop better performance data to assess   (202) 512-4268
               its programs                                fordj@gao.gov

               Enhance information technology systems      Joel C. Willemssen, Managing Director
                                                           Information Technology
                                                           (202) 512-6408
                                                           willemssenj@gao.gov

                                                           Robert F. Dacey, Director
                                                           Information Security Issues
                                                           Information Technology
                                                           (202) 512-3317
                                                           daceyr@gao.gov

               Improve financial management capabilities   Gregory D. Kutz, Director
                                                           Financial Management and Assurance
                                                           (202) 512-9095
                                                           kutzg@gao.gov




               Page 17                                                  GAO-03-111 USAID Challenges
Related GAO Products



Performance and      U.S. Agency for International Development: Status of Achieving Key
Accountability       Outcomes and Addressing Major Management Challenges. GAO-01-721.
                     Washington, D.C.: August 17, 2001.

                     Major Management Challenges and Program Risks: U.S. Agency for
                     International Development. GAO-01-256. Washington, D.C.: January 2001.

                     Observations on the U.S. Agency for International Development’s Fiscal
                     Year 1999 Performance Report and Fiscal Years 2000 and 2001
                     Performance Plans. GAO/NSIAD-00-195R. Washington, D.C.: June 30, 2000.

                     Observations on the U.S. Agency for International Development’s Fiscal
                     Year 2000 Performance Plan. GAO/NSIAD-99-188R. Washington, D.C.:
                     July 20, 1999.

                     Major Management Challenges and Program Risks: U.S. Agency for
                     International Development. GAO/OCG-99-16. Washington, D.C.: January
                     1999

                     AID Management: Strategic Management Can Help AID Face Current
                     and Future Challenges. GAO/NSIAD-92-100. Washington, D.C.: March 6,
                     1992.



Foreign Assistance   Foreign Assistance: Disaster Recovery Program Addressed Intended
                     Purposes, but USAID Needs Greater Flexibility to Improve Its Response
                     Capability. GAO-02-787. Washington, D.C.: July 24, 2002.

                     Foreign Assistance: USAID Relies Heavily on Nongovernmental
                     Organizations, but Better Data Needed to Evaluate Approaches. GAO-02-
                     471. Washington, D.C.: April 25, 2002.

                     Former Soviet Union: U.S. Rule of Law Assistance Has Had Limited
                     Impact. GAO-01-354. Washington, D.C.: April 17, 2001.

                     Foreign Assistance: Any Further Aid to Haitian Justice System Should
                     Be Linked to Performance-Related Conditions. GAO-01-24. Washington,
                     D.C.: October 17, 2000.

                     Foreign Assistance: Status of USAID’s Reforms. GAO/NSIAD-96-241BR.
                     Washington, D.C.: September 24, 1996.



                     Page 18                                        GAO-03-111 USAID Challenges
                         Related GAO Products




                         Foreign Assistance: AID Strategic Direction and Continued Management
                         Improvements Needed. GAO/NSIAD-93-106. Washington, D.C.: June 11,
                         1993.



Information Technology   Critical Infrastructure Protection: Significant Challenges Need to Be
                         Addressed. GAO-02-961T. Washington, D.C.: July 24, 2002.

                         Information Security: Additional Actions Needed to Implement Reform
                         Legislation. GAO-02-470T. Washington, D.C.: March 6, 2002.

                         Information Technology: Enterprise Architecture Use Across the Federal
                         Government Can Be Improved. GAO-02-6. Washington, D.C.: February 19,
                         2002.

                         Computer Security: Improvements Needed to Reduce Risk to Critical
                         Federal Operations and Assets. GAO-02-231T. Washington, D.C.: November
                         9, 2001.

                         Information Resources Management: Initial Steps Taken but More
                         Improvements Needed in AID’s IRM Program. GAO/IMTEC-92-64.
                         Washington, D.C.: September 29, 1992.




                         Page 19                                          GAO-03-111 USAID Challenges
Performance and Accountability and High-
Risk Series

              Major Management Challenges and Program Risks: A Governmentwide
              Perspective. GAO-03-95.

              Major Management Challenges and Program Risks: Department of
              Agriculture. GAO-03-96.

              Major Management Challenges and Program Risks: Department of
              Commerce. GAO-03-97.

              Major Management Challenges and Program Risks: Department of
              Defense. GAO-03-98.

              Major Management Challenges and Program Risks: Department of
              Education. GAO-03-99.

              Major Management Challenges and Program Risks: Department of
              Energy. GAO-03-100.

              Major Management Challenges and Program Risks: Department of
              Health and Human Services. GAO-03-101.

              Major Management Challenges and Program Risks: Department of
              Homeland Security. GAO-03-102.

              Major Management Challenges and Program Risks: Department of
              Housing and Urban Development. GAO-03-103.

              Major Management Challenges and Program Risks: Department of the
              Interior. GAO-03-104.

              Major Management Challenges and Program Risks: Department of
              Justice. GAO-03-105.

              Major Management Challenges and Program Risks: Department of
              Labor. GAO-03-106.

              Major Management Challenges and Program Risks: Department of State.
              GAO-03-107.

              Major Management Challenges and Program Risks: Department of
              Transportation. GAO-03-108.




              Page 20                                      GAO-03-111 USAID Challenges
Performance and Accountability and High-
Risk Series




Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of
Veterans Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental
Protection Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National
Aeronautics and Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the
Federal Government and the Nation’s Critical Infrastructures. GAO-03-
121.

High-Risk Series: Federal Real Property. GAO-03-122.




Page 21                                       GAO-03-111 USAID Challenges
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