oversight

Major Management Challenges and Program Risks: Agency for International Development

Published by the Government Accountability Office on 1999-01-01.

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

                United States General Accounting Office

GAO             Performance and Accountability
                Series




January 1999
                Major Management
                Challenges and Program
                Risks
                Agency for International
                Development




GAO/OCG-99-16
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States



      January 1999
      The President of the Senate
      The Speaker of the House of Representatives

      This report addresses performance and management
      challenges that have limited the effectiveness of the U.S.
      Agency for International Development (USAID) in carrying
      out its mission. It also outlines corrective actions that
      USAID has recently taken or initiated to address these
      challenges.

      USAID is faced with major challenges in improving its
      information and financial management systems and
      internal controls. The agency has recognized that it needs
      to give top-level attention to these management
      challenges and has undertaken a course of action to
      improve its systems and processes. For example, USAID
      has recently appointed a chief information officer and
      implemented a disciplined process for resolving
      deficiencies in its major management information
      systems. It also made Year 2000 problems its top
      information technology priority. This top-level
      management attention is critical and must be sustained to
      ensure that the challenges are successfully met.

      This report is part of a special series entitled the
      Performance and Accountability Series: Major
      Management Challenges and Program Risks. The series
      contains separate reports on 20 agencies—one on each of
      the cabinet departments and on most major independent
agencies as well as the U. S. Postal Service. The series
also includes a governmentwide report that draws from
the agency-specific reports to identify the performance
and management challenges requiring attention across
the federal government. As a companion volume to this
series, GAO is issuing an update to those government
operations and programs that its work has identified as
“high risk” because of their greater vulnerabilities to
waste, fraud, abuse, and mismanagement. High-risk
government operations are also identified and discussed
in detail in the appropriate performance and
accountability series agency reports.

The performance and accountability series was done at
the request of the Majority Leader of the House of
Representatives, Dick Armey; the Chairman of the House
Government Reform Committee, Dan Burton; the
Chairman of the House Budget Committee, John Kasich;
the Chairman of the Senate Committee on Governmental
Affairs, Fred Thompson; the Chairman of the Senate
Budget Committee, Pete Domenici; and Senator Larry
Craig. The series was subsequently cosponsored by the
Ranking Minority Member of the House Government
Reform Committee, Henry A. Waxman; the Ranking
Minority Member, Subcommittee on Government
Management, Information and Technology, House
Government Reform Committee, Dennis J. Kucinich;
Senator Joseph I. Lieberman; and Senator Carl Levin.

Copies of this report series are being sent to the
President, the congressional leadership, all other



             Page 2              GAO/OCG-99-16 USAID Challenges
Members of the Congress, the Director of the Office of
Management and Budget, the Administrator of the U.S.
Agency for International Development, and the heads of
other major departments and agencies.




David M. Walker
Comptroller General of
the United States




            Page 3             GAO/OCG-99-16 USAID Challenges
Contents



Overview                                               6

Major                                                 10
Performance and
Management
Issues
Related GAO                                           19
Products
Performance and                                       20
Accountability
Series




                  Page 4   GAO/OCG-99-16 USAID Challenges
Page 5   GAO/OCG-99-16 USAID Challenges
Overview



                    With a budget of over $6 billion a year, the
                    U.S. Agency for International Development
                    (USAID) provides assistance to developing
                    countries. USAID’s development mission is
                    multifaceted and complex, with strategic
                    goals ranging from economic growth to
                    environmental protection. In the more than
                    100 countries where it has programs, USAID
                    works with a wide array of public and
                    private partners, relying heavily on private
                    partners to implement its programs. Given
                    the complexity of this operating
                    environment, establishing efficient
                    management structures that focus on
                    accountability and results is critical to
                    ensuring that scarce foreign aid funds are
                    spent effectively. However, USAID faces some
                    major performance and management
                    challenges that threaten its ability to carry
                    out its mission effectively.


The Challenges

USAID Has Not       USAID’s effort to develop and implement its
Implemented a       New Management System (NMS), which is
Comprehensive       meant to consolidate primary information
Information         systems into a single integrated network, has
Management System
                    not been fully successful. The NMS is only
                    partially functional and has created

                    Page 6             GAO/OCG-99-16 USAID Challenges
                      Overview




                      problems in agency operations. In 1996,
                      USAID deployed the system without sufficient
                      testing, and subsequent difficulties forced
                      USAID to suspend its use for most
                      administrative functions in overseas
                      missions in April 1997. Despite an
                      expenditure of at least $92 million to date,
                      the NMS is not likely to be fully operational
                      and compliant with federal accounting
                      standards for several more years. Until then,
                      USAID will not have accurate information to
                      ensure that its operations and programs are
                      being managed in a cost-effective and
                      efficient manner.


USAID’s Actions Not   USAID’s computer systems in headquarters
Adequate to Resolve   and in its field offices are not yet equipped to
the Year 2000         handle the Year 2000 problem. USAID has not
Problem               taken adequate steps to address this problem
                      and has not developed contingency plans to
                      ensure continuity of all of its mission-critical
                      business operations. Although USAID has
                      requested supplemental funds to accelerate
                      the Year 2000 compliance process, it
                      continues to face a serious risk that its
                      systems and operations could fail or be
                      significantly degraded.




                      Page 7              GAO/OCG-99-16 USAID Challenges
                     Overview




USAID Remains        USAID  continues to face financial
Vulnerable to Weak   management challenges. The lack of an
Financial            integrated financial management system and
Management           the existence of material control weaknesses
                     hinder the agency’s ability to produce
                     auditable financial statements. As in the
                     previous year, USAID’s Office of Inspector
                     General (OIG) was unable to express an
                     opinion on the agency’s financial statements
                     for fiscal year 1997. The process of preparing
                     financial statements and subjecting them to
                     independent audit is the first step in
                     generating complete, reliable, and timely
                     financial information for decisionmakers at
                     all levels. Without financial integration and
                     strong controls, USAID’s systems do not
                     comply with federal accounting and
                     management requirements.


Progress and         USAID has taken several steps in the past year
Next Steps           to address these management challenges.
                     USAID has designated a Chief Information
                     Officer and NMS program manager to institute
                     more disciplined processes for managing
                     information technology and to address NMS
                     system deficiencies. In addition, USAID has
                     made the Year 2000 problem the agency’s
                     highest information technology priority.
                     Further, the USAID Chief Financial Officer
                     (CFO) is in the process of submitting a plan to


                     Page 8              GAO/OCG-99-16 USAID Challenges
Overview




the Office of Management and Budget to
address some of its financial management
deficiencies over the next 5 years. However,
resolving these deficiencies will require
USAID to commit significant management
attention to achieving genuine reform.




Page 9             GAO/OCG-99-16 USAID Challenges
Major Performance and Management
Issues


            USAID has primary responsibility for
            implementing a diverse array of U.S. foreign
            assistance programs throughout the world. It
            designs and manages programs in the areas
            of (1) economic growth and agricultural
            development, (2) education and training,
            (3) world population and human health,
            (4) environmental protection, and
            (5) humanitarian relief. Foreign assistance
            projects are implemented in association with
            host governments, nongovernmental
            organizations, international agencies,
            universities, and other contractors through
            USAID headquarters bureaus and about
            70 overseas missions and offices.

            This report summarizes recent findings on
            the effectiveness of USAID’s efforts to
            implement effective information and
            financial management systems and ensure
            that its computer systems are ready for the
            Year 2000. The report also addresses USAID’s
            efforts to correct these management
            deficiencies.




            Page 10            GAO/OCG-99-16 USAID Challenges
                Major Performance and Management
                Issues




USAID Has Not   Although USAID has spent, by its own
Implemented a   account, at least $92 million to develop and
Comprehensive   maintain the NMS, the system does not work
Management      as intended and has created problems in
Information     mission operations and morale. The NMS was
                designed to enable USAID to manage its
System
                resources and monitor results more
                effectively by consolidating accounting,
                budget, personnel, procurement, program
                operations, and property management into a
                single, integrated network. It was designed
                to allow the agency’s missions and offices
                worldwide to access information and to aid
                in the effective management and monitoring
                of its programs. Correcting system
                deficiencies is essential to USAID’s continued
                progress in improving its operations,
                including ensuring financial accountability
                and implementing performance-based
                management.

                USAID began developing the NMS in 1994 and
                activated it at USAID headquarters in
                July 1996 and at the overseas missions in
                October 1996. The agency deployed the
                system worldwide, knowing that it was not
                fully operational or adequately tested.
                Consequently, agency staff experienced
                chronic problems with the NMS, including
                excessively slow operation and difficulties
                transferring data from one computer


                Page 11               GAO/OCG-99-16 USAID Challenges
Major Performance and Management
Issues




application to another. USAID suspended use
of part of the NMS in the missions but has
continued to use the NMS accounting module
in Washington, despite warnings from the
OIG that doing so “leaves USAID vulnerable to
losses from fraud or abuse and hinders
USAID’s ability to provide adequate assurance
that it can account for resources.” According
to the OIG, the NMS does not have a system of
internal controls that meet federal
government standards, was deployed
without providing the necessary training to
many users, and is difficult to maintain due
to deficiencies in the software code, among
other problems.

USAID has taken some steps to correct the
deficiencies of the NMS, including appointing
a Chief Information Officer who has
instituted more disciplined processes for
planning, developing, and implementing new
management information technology. An NMS
program manager has also been appointed to
handle deficiencies and implement remedial
actions within the NMS. However, USAID does
not anticipate fully implementing the NMS
across the agency for several more years.
Thus, the NMS still presents a critical
management challenge for the foreseeable
future, and we will continue monitoring
USAID’s reform efforts.



Page 12               GAO/OCG-99-16 USAID Challenges
                   Major Performance and Management
                   Issues




Key Contact        Benjamin F. Nelson, Director
                   International Affairs and Trade Issues
                   National Security and International Affairs
                     Division
                   (202) 512-4128
                   nelsonb.nsiad@gao.gov


USAID’s Actions    USAID has not taken adequate steps to
Not Adequate to    address the computer problems associated
Resolve the Year   with accommodating dates beyond
2000 Problem       1999—the “Year 2000 problem.” The Office
                   of Management and Budget has categorized
                   USAID as a “tier I” agency for Year 2000
                   readiness—that is, USAID is among those
                   agencies that have not shown satisfactory
                   progress in ensuring that they will be able to
                   continue mission-critical business
                   operations in the Year 2000. USAID had relied
                   heavily on implementation of the NMS to
                   resolve the agency’s Year 2000 problems.
                   However, full implementation of the NMS has
                   been delayed beyond the Year 2000. In
                   addition, studies have revealed that those
                   parts of the NMS system currently in place are
                   not immune to the Year 2000 problem and
                   have already encountered many serious
                   date-handling difficulties.

                   Remediation of the Year 2000 problem is
                   currently under way and is USAID’s highest


                   Page 13               GAO/OCG-99-16 USAID Challenges
Major Performance and Management
Issues




information technology priority, according
to agency officials. USAID plans to complete
this effort by October 1999 for those
elements of the system that are operational
and has requested $10.2 million in
supplemental funds to accelerate the pace of
Year 2000 compliance. However, it is unclear
whether this effort will be sufficient, given
the short time and the broad extent of
testing and system integration that needs to
be done. In addition, USAID’s Year 2000
program has significant shortcomings in
scope. The agency is concentrating its
remediation efforts on the NMS and other
corporate systems and has not fully
addressed systems developed separately by
its worldwide missions and bureaus or the
systems that it has funded in other countries.
This would include high-visibility overseas
projects such as the stock market trading
system in Russia and extensive
communications network improvements in
Egypt.

Given that these various shortcomings
suggest a high risk that USAID’s systems could
experience disruptive failures, it is critical
that the agency have contingency plans in
place to ensure continuity of its business
operations. However, USAID is only now
beginning to prepare contingency plans after


Page 14               GAO/OCG-99-16 USAID Challenges
                 Major Performance and Management
                 Issues




                 being criticized for poor progress in this area
                 by the OIG. Fixing the agency’s Year 2000
                 problems will require focused management
                 attention at the most senior levels of the
                 agency.


Key Contact      Jack L. Brock, Jr., Director
                 Governmentwide and Defense Information
                   Systems
                 Accounting and Information Management
                   Division
                 (202) 512-6240
                 brockj.aimd@gao.gov


USAID Remains    USAID  continues to face serious financial
Vulnerable to    management problems. As in the previous
Weak Financial   fiscal year, the OIG was unable to express an
Management       opinion on USAID’s financial statements for
                 fiscal year 1997 because (1) USAID’s financial
                 management systems could not produce
                 complete, reliable, timely, and consistent
                 financial information in accordance with
                 federal requirements and (2) weak internal
                 controls in accounting and financial
                 management systems precluded the OIG from
                 obtaining sufficient evidential matter to
                 perform adequate testing. USAID’s inadequate
                 financial accounting system makes it
                 difficult for the agency to accurately account


                 Page 15               GAO/OCG-99-16 USAID Challenges
Major Performance and Management
Issues




for activity costs and measure its program
results.

The OIG concluded that USAID’s financial
management system does not meet the
federal financial systems requirements.
Federal law requires agencies to develop and
maintain an integrated accounting and
financial management system that
substantially complies with applicable
accounting principles and internal control
standards. USAID’s introduction of the NMS in
October 1996 was intended to correct these
long-standing system deficiencies. However,
as previously noted, the NMS was not
successfully implemented. As a result, USAID
continues to use a variety of nonintegrated
systems that require data reentry,
supplementary accounting records, and
lengthy and burdensome reconciliation
processes.

The OIG reported several material
weaknesses in internal controls that impair
the integrity of financial information. These
deficiencies prevented the OIG from
obtaining sufficient evidence to express an
opinion on USAID’s financial statements. For
example, the OIG reported the following
control weaknesses:



Page 16               GAO/OCG-99-16 USAID Challenges
    Major Performance and Management
    Issues




•   USAID did not have adequate controls to
    ensure that disbursements made through
    letters of credit (about $1.69 billion in fiscal
    year 1997) were authorized, proper, correct,
    and accurately recorded and reported.
•   USAID did not review and reconcile
    unexpended appropriation balances as
    required by the U.S. Department of the
    Treasury. As a result, USAID’s unexpended
    appropriation balances may potentially be
    misstated.
•   USAID has not established effective policies
    and procedures for recording and reporting
    financial statement account balances.
    Therefore, USAID cannot provide adequate
    assurance that all financial transactions are
    complete, consistent, reliable, and properly
    reported.

    USAID is in the process of correcting some of
    its deficiencies, in part by contracting a
    number of its financial management
    functions to organizations outside the
    agency, including a private bank and another
    U.S. government agency. USAID’s Chief
    Financial Officer is also in the process of
    submitting a 5-year plan to the Office of
    Management and Budget outlining
    improvement initiatives, including system
    remediation efforts. In addition to the
    system improvements, USAID needs to


    Page 17               GAO/OCG-99-16 USAID Challenges
              Major Performance and Management
              Issues




              strengthen its internal controls to ensure
              that (1) transactions are properly recorded;
              (2) assets are safeguarded against loss due
              to unauthorized access, use, and disposition;
              and (3) transactions are executed in
              compliance with laws and regulations that
              could have a direct and material effect on
              the financial statements. As part of the
              agency’s required annual financial
              statements audit, USAID’s OIG will continue to
              assess and report on whether USAID internal
              controls are effective. In addition, we will
              monitor USAID’s progress in resolving these
              long-standing financial management
              problems.


Key Contact   Lisa G. Jacobson
              Director, Defense Financial Audits
              Accounting and Information Management
                Division
              (202) 512-9095
              jacobsonl.aimd@gao.gov




              Page 18               GAO/OCG-99-16 USAID Challenges
Related GAO Products



            The Results Act: Observations on the U.S.
            Agency for International Development’s
            Fiscal Year 1999 Annual Performance Plan
            (GAO/NSIAD-98-194R, June 25, 1998).

            Foreign Assistance: USAID’s Reengineering at
            Overseas Missions (GAO/NSIAD-97-194,
            Sept. 12, 1997).

            The Results Act: Observations on USAID’s
            November 1996 Draft Strategic Plan
            (GAO/NSIAD-97-197R, July 11, 1997).

            Foreign Assistance: Status of USAID’s
            Reforms (GAO/NSIAD-96-241BR, Sept. 24, 1996).

            Information Management Reform: Effective
            Implementation Is Essential for Improving
            Federal Performance (GAO/T-AIMD-96-132,
            July 17, 1996).

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




            Page 19             GAO/OCG-99-16 USAID Challenges
Performance and Accountability Series



             Major Management Challenges and Program
             Risks: A Governmentwide Perspective
             (GAO/OCG-99-1)

             Major Management Challenges and Program
             Risks: Department of Agriculture
             (GAO/OCG-99-2)

             Major Management Challenges and Program
             Risks: Department of Commerce
             (GAO/OCG-99-3)

             Major Management Challenges and Program
             Risks: Department of Defense (GAO/OCG-99-4)

             Major Management Challenges and Program
             Risks: Department of Education
             (GAO/OCG-99-5)

             Major Management Challenges and Program
             Risks: Department of Energy (GAO/OCG-99-6)

             Major Management Challenges and Program
             Risks: Department of Health and Human
             Services (GAO/OCG-99-7)

             Major Management Challenges and Program
             Risks: Department of Housing and Urban
             Development (GAO/OCG-99-8)




             Page 20           GAO/OCG-99-16 USAID Challenges
Performance and Accountability Series




Major Management Challenges and Program
Risks: Department of the Interior
(GAO/OCG-99-9)

Major Management Challenges and Program
Risks: Department of Justice (GAO/OCG-99-10)

Major Management Challenges and Program
Risks: Department of Labor (GAO/OCG-99-11)

Major Management Challenges and Program
Risks: Department of State (GAO/OCG-99-12)

Major Management Challenges and Program
Risks: Department of Transportation
(GAO/OCG-99-13)

Major Management Challenges and Program
Risks: Department of the Treasury
(GAO/OCG-99-14)

Major Management Challenges and Program
Risks: Department of Veterans Affairs
(GAO/OCG-99-15)

Major Management Challenges and Program
Risks: Agency for International Development
(GAO/OCG-99-16)




Page 21                  GAO/OCG-99-16 USAID Challenges
Performance and Accountability Series




Major Management Challenges and Program
Risks: Environmental Protection Agency
(GAO/OCG-99-17)

Major Management Challenges and Program
Risks: National Aeronautics and Space
Administration (GAO/OCG-99-18)

Major Management Challenges and Program
Risks: Nuclear Regulatory Commission
(GAO/OCG-99-19)

Major Management Challenges and Program
Risks: Social Security Administration
(GAO/OCG-99-20)

Major Management Challenges and Program
Risks: U.S. Postal Service (GAO/OCG-99-21)

High-Risk Series: An Update (GAO/HR-99-1)




The entire series of 21 performance and
accountability reports and the high-risk
series update can be ordered by using
the order number GAO/OCG-99-22SET.


Page 22                  GAO/OCG-99-16 USAID Challenges
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