[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




  THE U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT: WHAT MUST BE DONE TO 
      RESOLVE USAID'S LONGSTANDING FINANCIAL MANAGEMENT PROBLEMS?

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 8, 2001

                               __________

                           Serial No. 107-53

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

77-918              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
DOUG OSE, California                 JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JIM TURNER, Texas
JO ANN DAVIS, Virginia               THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania    JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   ------ ------
ADAM H. PUTNAM, Florida              ------ ------
C.L. ``BUTCH'' OTTER, Idaho                      ------
EDWARD L. SCHROCK, Virginia          BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

    Subcommittee on Government Efficiency, Financial Management and 
                      Intergovernmental Relations

                   STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
DAN MILLER, Florida                  MAJOR R. OWENS, New York
DOUG OSE, California                 PAUL E. KANJORSKI, Pennsylvania
ADAM H. PUTNAM, Florida              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                 Earl Pierce, Professional Staff Member
                          Grant Newman, Clerk
          Mark Stephenson, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 8, 2001......................................     1
Statement of:
    Mosley, Everett L., Inspector General, U.S. Agency for 
      International Development, accompanied by Bruce N. 
      Crandlemire, Deputy Assistant Inspector General for Audit; 
      Richard Nygard, Acting Assistant Administrator for 
      Management U.S. Agency for International Development, 
      accompanied by Michael T. Smokovich, Chief Financial 
      Officer; and Elmer S. Owens, Deputy Chief Financial Officer 
      for Policy and Credit Programs.............................     6
Letters, statements, etc., submitted for the record by:
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Mosley, Everett L., Inspector General, U.S. Agency for 
      International Development, prepared statement of...........    10
    Nygard, Richard, Acting Assistant Administrator for 
      Management U.S. Agency for International Development, 
      prepared statement of......................................    25
    Owens, Elmer S., Deputy Chief Financial Officer for Policy 
      and Credit Programs, information concerning administrative 
      receivables................................................    31

 
  THE U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT: WHAT MUST BE DONE TO 
      RESOLVE USAID'S LONGSTANDING FINANCIAL MANAGEMENT PROBLEMS?

                              ----------                              


                          TUESDAY, MAY 8, 2001

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11:18 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Putnam, and Schakowsky.
    Staff present: J. Russell George, staff director and chief 
counsel; Dianne Guensberg, detailee; Bonnie Heald, director of 
communications; Earl Pierce, professional staff member; Grant 
Newman, assistant to the committee; Alex Hurowitz, intern; Mark 
Stephenson, minority professional staff member; and Jean Gosa, 
minority assistant clerk.
    Mr. Horn. A quorum being present this hearing of the 
Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations will come to order. We're here 
today to continue our examination of how Federal departments 
and agencies in the executive branch of the government account 
for the billions of taxpayer dollars they spend each year. This 
morning the subcommittee examined financial management efforts 
at the government's largest agency in terms of people and 
budget. Now we will examine one of the government's smaller 
agencies, the U.S. Agency for International Development. 
Similar to the Department of Defense for the 5th consecutive 
year, the Agency for International Development has had such 
significant problems with its financial systems that it was 
unable to produce financial statements that auditors could 
certify as reliable.
    Also, similar to the Department of Defense, the Agency 
again received the unacceptable grade of F on the 
subcommittee's annual report card on Federal financial 
management.
    In this hearing, we will focus on what actions must be 
taken to resolve these financial management issues. The U.S. 
Agency for International Development provides nonmilitary 
international aid to further U.S. interests abroad. The agency 
focuses on six principal areas: economic growth and 
development, population health and nutrition, environment, 
democracy and governance, education and training, and 
humanitarian assistance.
    The agency provides aid primarily through grants and loan 
guarantees to foreign governments and to humanitarian 
organizations. Although small by Federal Government standards, 
the operations of the Agency for International Development are 
substantial. The Agency for International Development receives 
appropriated funds of about $7 billion annually, and manages 
and estimated $10 billion in outstanding loans. An estimated $4 
billion of that amount is believed to be uncollectible. 
Furthermore, the Agency estimates it may be required to pay out 
$1.1 billion in defaulted agency guaranteed loans made by other 
entities. The Agency's inability to properly account for these 
asset liabilities and costs is frankly intolerable.
    For fiscal year 2000, USAID's Inspector General was unable 
to provide an opinion on the reasonableness of amounts reported 
in the Agency's financial statements. The Inspector General 
also found that the Agency had significant weaknesses in its 
system of internal controls and did not comply with Federal 
financial management laws and regulations. Although many 
improvements have been made, the Inspector General reported 
that agency systems and processes still do not provide reliable 
financial information on a regular basis.
    Now we have a new administration, which hopefully will 
focus close attention on the U.S. Agency for International 
Development and its continuing inability to address these long-
standing financial management problems.
    We welcome our witnesses today. The Honorable Evert Mosley, 
Inspector General of the U.S. Agency for International 
Development; Richard Nygard, Acting Assistant Administrator for 
Management of U.S. Agency for International Development.
    [The prepared statement of Hon. Stephen Horn follows:]

    [GRAPHIC] [TIFF OMITTED] T7918.001
    
    [GRAPHIC] [TIFF OMITTED] T7918.002
    
    Mr. Horn. Gentlemen, we look forward to your testimony, 
your insight and your recommendations to resolve these 
financial management problems at the U.S. Agency for 
International Development. I will now yield for an opening 
statement to the ranking member of the subcommittee, and that 
is the gentlewoman from Illinois, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman, and welcome to our 
witnesses. The Subcommittee on Government Efficiency, Financial 
Management and Intergovernmental Relations is in the process of 
examining financial management issues in a number of troubled 
agencies. Last month we began the series of hearings with an 
inspection of the consolidated financial statement of the 
United States. The U.S. Agency for International Development is 
one of three agencies which has been unable to produce 
auditable financial statements since that requirement became 
law 4 years ago. USAID was created in 1961 to advance the 
foreign policy interests of the United States by promoting 
sustainable development and providing humanitarian assistance, 
goals which I strongly support.
    In fact, I have been a beneficiary of one session of 
training with USAID on international disaster. I keep my FOG 
guide on my desk. You never know what's going to happen. I have 
got all the instructions right there. So I do support the work 
that you do. It has an overseas presence in more than 70 
countries. And again, I had the pleasure of going with Brady 
Anderson on the trip with the President to visit some sites in 
India that USAID supports, 42 of which have formal missions in 
fiscal year 2000. USAID has a total obligation authority of 
$7.5 billion. USAID's international mandate causes financial 
management challenges unique to this agency. This must not, 
however, be an excuse for lack of improvement because better 
financial management will ultimately mean resources more 
efficiently dedicated to their intended worthwhile purposes.
    I'm therefore glad that there appears to be some 
improvement in the financial management of USAID as the 
Agency's Inspector General has said in his written statement, 
``USAID has made progress toward resolving some long-standing 
problems with its financial management systems and has 
committed significant resources for additional improvements 
necessary for preparing auditable financial statements as well 
as information to use for managing operations.'' These are 
encouraging words from the Agency's independent watchdog. I 
urge the Agency's senior management to continue to devote 
serious attention and resources to correcting the financial 
management concerns at USAID. Thank you, Mr. Chairman.
    Mr. Horn. Let me explain, since many of you have not 
appeared before this subcommittee, we will administer the oath, 
all testimony is under oath in this investigating committee. 
When I call on you the full text of your written testimony will 
be immediately put in the record at that point. If you could 
summarize it between 5 and 10 minutes, it would be appreciated, 
because we can then get down to the questions. And those are 
the ones that each member has dear feelings about; and they 
should.
    So if you will stand and raise your right hand, we'll swear 
you all in. If there are any assistants in back of you that 
might whisper to you, have them put up their right hand too. 
The clerk will take their names and put them in the hearing at 
this point.
    [Witnesses sworn.]
    Mr. Horn. The five witnesses have taken the oath. We will 
now start here, and we'll begin with the Inspector General, the 
Honorable Everett L. Mosley.

STATEMENTS OF EVERETT L. MOSLEY, INSPECTOR GENERAL, U.S. AGENCY 
    FOR INTERNATIONAL DEVELOPMENT, ACCOMPANIED BY BRUCE N. 
  CRANDLEMIRE, DEPUTY ASSISTANT INSPECTOR GENERAL FOR AUDIT; 
 RICHARD NYGARD, ACTING ASSISTANT ADMINISTRATOR FOR MANAGEMENT 
   U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT, ACCOMPANIED BY 
  MICHAEL T. SMOKOVICH, CHIEF FINANCIAL OFFICER; AND ELMER S. 
  OWENS, DEPUTY CHIEF FINANCIAL OFFICER FOR POLICY AND CREDIT 
                            PROGRAMS

    Mr. Mosley. Mr. Chairman, other committee members and 
committee staff, good morning and thank you for the opportunity 
to appear before you today, along with Mr. Nygard, who is 
representing agency management. I have with me today Mr. Bruce 
Crandlemire, who is our Deputy Assistant Inspector General for 
Audit with responsibility for the financial audit process at 
the U.S. Agency for International Development. We're pleased to 
be here today to provide testimony and answer questions on the 
results of the Office of Inspector General's audit of USAID's 
fiscal year 2000 financial statements and actions needed to 
correct longstanding problems in USAID's financial management 
systems. As documented, we were unable to render opinion on 
USAID's annual financial statements for the last 4 years. In 
this testimony, I will discuss the results of our audit of 
USAID's fiscal year 2000 financial statements and USAID's 
corrective actions to date. I will also discuss what remains to 
be done from USAID's perspective of correcting system problems 
and preparing auditable financial statements for fiscal year 
2001.
    As a result of the Chief Financial Officer's Act of 1990, 
the Government Management Reform Act of 1994, and the Federal 
Financial Management Improvement Act of 1996, the Federal 
Government has embarked on a course to improve the quality of 
financial information used to manage its activities. Each of 
these laws has impacted the preparation and audit of annual 
financial statements by the Federal agencies. However, the 
overwhelming theme woven through these legislative initiatives 
is that the Federal Government needs to have good financial 
systems which will enable them to produce complete, consistent, 
reliable, and timely information throughout the fiscal year.
    The audit opinion of the financial statements, which 
represents the status of the financial operations at a specific 
point in time, is, or should be, a simple by-product of good 
financial management systems because the opinion is based on 
everyday information contained in its accounting records.
    We do not believe that the legislation contemplated the use 
of heroic measures to prepare and audit a set of financial 
statements which do not reflect the information normally 
present and used to manage operations.
    For example, it is possible for an agency that has 
inadequate financial systems to receive an opinion, even an 
unqualified opinion. However, to do so, two things would have 
to be done: First, the Agency would have to invest significant 
time and money to create work around procedures to achieve 
accurate information that the system could not produce. Second, 
the OIG or other audit organizations would have to invest 
significant time and money to perform extensive testing of 
these procedures, due to the increase in audit risk associated 
with unreliable systems.
    In my opinion it would be a waste of resources and a 
contradiction of the legislative intent for an agency to go 
through such efforts to receive an opinion on its financial 
statements when it does not have systems that could provide 
complete, consistent, reliable, and timely information for 
managers to use throughout the year in making decisions.
    During the last 18 months USAID has made progress toward 
resolving some longstanding problems with its financial 
management systems and has submitted significant resources for 
additional improvements necessary for preparing auditable 
financial statements. However, at the time the audit began, 
USAID still faced some immediate challenges with its fiscal 
year 2000 financial statements.
    These challenges included: correcting outstanding financial 
management systems deficiencies; implementing an integrated 
financial management system; reconciling financial data; and 
processing, recording, and reporting financial information in 
accordance with general accepted accounting principles.
    Because USAID's efforts to improve the system that produces 
financial statements had not fully implemented all related 
corrective actions, the OIG and USAID management agreed that it 
would be most beneficial to focus our audit efforts on the five 
areas that were prohibiting USAID from getting an opinion. 
These five areas were: complying with the FFMIA requirements, 
such as computer security and the use of Federal accounting 
standards; reconciling and managing USAID's fund balances with 
Treasury; reporting credit program receivables; accounting for 
advances to grantees; and calculating and reporting accounts 
payable and accrued expenses.
    By focusing on these five areas rather than performing 
substantive testing on what we agreed was unreliable financial 
information, the OIG and management officials concluded that 
USAID would be in a better position to establish reliable 
beginning balances for future statements to be audited and 
progress toward having a system capable of helping managers 
manage.
    We were unable to express an opinion of USAID's 
consolidated financial statements for the fiscal year ending 
September 30, 2000, and I shall use a disclaimer. Factors that 
led to our decision to disclaim an opinion were that USAID made 
some material changes in its accounting process after the close 
of fiscal year 2000. These changes resulted in material 
adjustments to the financial statements late in December 2000. 
And because the Agency's automated system could not be used to 
develop information that the OIG could use to validate the 
adjustments, we did not have sufficient support to determine 
whether the adjustments were reliable.
    The uncorrected system deficiencies and material 
adjustments created a consequential risk that the financial 
statements could contain material misstatements. USAID's 
management concurred with the audit findings and agreed to 
eliminate these problems. We're continuing to work with USAID 
management to evaluate their efforts and take corrective 
actions.
    To correct these deficiencies reported, USAID deployed a 
core financial accounting component of a new financial 
management and accounting system in December 2000. This 
commercial off-the-shelf accounting system, Phoenix as it is 
called, replaced key aspects of the Agency's unreliable 
financial management systems, called the New Management System 
[NMS].
    In addition, our audit of the fiscal year 2000 financial 
statements show that USAID had improved its ability to 
reconcile and manage its funds balance with the U.S. Treasury 
and report reliable balances for its credit program 
receivables.
    In late December 2000, USAID established a new methodology 
for estimating its accounts payable and accrued expenses 
related to advances to grantees at fiscal year's end. I am 
pleased to note that during the initial phases of the fiscal 
year 2000 audit, the OIG has analyzed the advance-related 
accrued expenses estimating method and found it to be adequate.
    Regarding the problems noted in fiscal year 2000 with the 
accounts payable estimates, the OIG is currently evaluating 
USAID's procedure to determine the reasonableness of its 
estimating methodology.
    Despite having implemented Phoenix in headquarters, there 
remains work to be done. USAID needs to successfully complete 
the Phoenix implementation worldwide, complete financial 
actions on outstanding audit recommendations, and address 
several specific issues with material line items on its 
financial statements.
    Along with deploying Phoenix, USAID is facing challenges 
that typically occur when implementing new accounting systems. 
Phoenix is not yet fully operational and in the short term, 
USAID needs to: one, complete the testing and deployment of the 
interfaces linking mission and procurement data to the core 
financial system; two, eliminate several key operational 
elements performed outside the core financial accounting 
system, such as making payments and generating funds control 
reports; and three, migrate the beginning balances for fiscal 
year 2001.
    To date, USAID has not entered into the Washington 
headquarters accounting records any financial information 
related to its overseas operation for fiscal year 2001. 
Overseas operations are recorded and maintained in the mission 
accounting and control system [MACS]. USAID does not plan to 
enter the information into the Washington headquarters 
accounting records until an electronic interface for field data 
is deployed, currently scheduled for late in this fiscal year.
    This will have a critical impact on the fiscal year's 2001 
audit, because we cannot fully assess risks associated with the 
electronic interface until it is deployed. Further, MACS is not 
currently scheduled for replacement until fiscal year 2003. 
This will continue to impact future audits until MACS is 
replaced with the worldwide implementation of Phoenix.
    USAID also needs to address the remaining OIG 
recommendations that were not fully completed as of September 
30, 2000. While management has concurred with these 
recommendations, all financial actions have not been 
accomplished.
    Finally, USAID must be able to establish beginning balances 
for material line items of its financial statements for OIG to 
opine on the fiscal year 2001 financial statements. We are 
currently working with USAID to review these beginning balances 
for our fiscal year 2001 audit.
    The challenges faced by USAID also present challenges to 
OIG in planning our audit of the fiscal year 2001 financial 
statements. At this time, we cannot be sure what problems may 
arise as USAID continues to address its financial management 
problems and complete the deployment of the Phoenix system and 
its necessary interfaces.
    While USAID lost valuable time during the period when it 
was attempting to implement the NMS, considerable progress has 
been made since a decision was made to deploy Phoenix. In 
addition, USAID's financial managers have shown an increasingly 
strong and supportive attitude toward the financial statement 
audit and the value it brings to their systems. Specifically, 
the new Administrator, who was just sworn in last week, has 
said that improving the Agency's management systems will be his 
primary focus in his first year.
    We are currently hopeful that USAID can develop fiscal year 
2001 financial statements on which we can render an opinion.
    Mr. Chairman that concludes my statement. And we will be 
pleased to answer questions.
    [The prepared statement of Mr. Mosley follows:]

    [GRAPHIC] [TIFF OMITTED] T7918.003
    
    [GRAPHIC] [TIFF OMITTED] T7918.004
    
    [GRAPHIC] [TIFF OMITTED] T7918.005
    
    [GRAPHIC] [TIFF OMITTED] T7918.006
    
    [GRAPHIC] [TIFF OMITTED] T7918.007
    
    [GRAPHIC] [TIFF OMITTED] T7918.008
    
    [GRAPHIC] [TIFF OMITTED] T7918.009
    
    [GRAPHIC] [TIFF OMITTED] T7918.010
    
    [GRAPHIC] [TIFF OMITTED] T7918.011
    
    [GRAPHIC] [TIFF OMITTED] T7918.012
    
    [GRAPHIC] [TIFF OMITTED] T7918.013
    
    [GRAPHIC] [TIFF OMITTED] T7918.014
    
    [GRAPHIC] [TIFF OMITTED] T7918.015
    
    Mr. Horn. I thank the gentleman. We now have the Acting 
Assistant Administrator for Management, Richard C. Nygard, for 
the U.S. Agency for International Development.
    Mr. Nygard. Thank you, Mr. Chairman. Mr. Chairman and 
members. It's my honor to appear today before your subcommittee 
to discuss the problems we've experienced in our financial 
systems and the actions we've taken to date and are taking to 
correct them. I'm accompanied today by Mr. Michael Smokovich, 
our chief financial officer, and by Mr. Sandy Owens, our deputy 
CFO. I will, as you suggested, briefly summarize my written 
testimony.
    Mr. Chairman, our focus over the past 3 years has been on 
solving the Agency's fundamental financial management problems. 
We've devoted extraordinary efforts to correcting our systems 
and processes, believing that this work is most important and 
will lead to auditable financial statements. We've worked 
closely with Mr. Mosley and his staff in addressing these 
problems and have made considerable progress. With the efforts 
that have been made and that will continue, we plan to have our 
statements audited this year and to move rapidly thereafter 
toward getting a ``clean,'' unqualified opinion. Our efforts 
are based on solving specific problems, on eliminating material 
weaknesses, on improving our financial and other business 
information systems, and on carrying out a comprehensive 
financial remediation plan.
    In terms of problems, the IG staff have pointed out a 
number of these that impeded their ability to audit USAID's 
financial statements over the past few years. We've 
concentrated this year on achieving major progress in four 
problem areas. First is the reconciliation of fund or cash 
balances with Treasury. We've achieved continuous improvement 
in this area. As an example, our absolute difference with 
Treasury was reduced from $266 million in fiscal 1999 to less 
than $83 million last year. We expect further improvement this 
year, and despite the workload and complexities related to 
implementing our new accounting system, we plan to bring that 
difference down.
    Next is loan accounts receivable. We outsourced our loan 
and credit servicing to a commercial bank in 1998 and have 
improved performance in that area, as was noted by Mr. Mosley. 
Third is advances to grantees. The Inspector General has been 
concerned that using pooled advances whereby a grantee can 
receive advances on multiple grants in a single transaction 
doesn't give adequate accountability. So we're converting to 
grant-specific advances. We've already reconciled more than 
half of our grantee accounts, and have begun conversion of 
these accounts to the new approach.
    Fourth, our methodology for accrued expenditures has 
improved to provide greater accuracy. We introduced this new 
methodology late last fiscal year, but as noted, too late for 
the IG to validate its accuracy. We're working with the IG to 
facilitate their doing so this year.
    In the area of material weaknesses, in 1998, the Agency 
reported nine such weaknesses. To date, we've closed five of 
them and expect to close three more this year, and the final 
one next year. The three to be closed this year are the 
accounting system itself, which our new COTS-based system will 
resolve; financial reporting, which will be solved by an 
effective interface between the new headquarters accounting 
system and our ongoing system in the field; and IRM procedures, 
which will be resolved through the use of the disciplined IT 
methodology that we've been working on for the past 3 years.
    The fourth and last remaining material weakness is computer 
security, a concern to all Federal agencies. We've made major 
progress in this area and have taken a leadership role in 
establishing best practices under the Federal CIO council. 
We've devoted high priority to assuring the security of the new 
accounting system and are also strengthening the security of 
systems at our overseas accounting stations.
    Let me talk now about improving systems. After an 
unsuccessful attempt to implement a custom built system in the 
mid 90's, we followed the recommendations of an independent 
review led by IBM: employing a highly skilled systems 
integration firm, basing our systems on COTS packages designed 
for Federal agencies, and outsourcing and cross-servicing with 
other agencies wherever possible.
    We procured such an accounting system late in fiscal 1999, 
configured it in fiscal 2000 without making any modifications 
to the software, and implemented it at headquarters earlier 
this year. We plan to purchase a COTS procurement system next 
year. We have outsourced our loan and credit servicing to a 
commercial bank and have cross-serviced our grant letter of 
credit advances programs, our payroll processing and our 
personnel data system to other Federal agencies. This year we 
will implement automated interfaces between our new financial 
system and other systems.
    On our remediation plan, we've instituted a comprehensive 
plan which includes many of the actions mentioned above and 
also focuses on better approaches to resolving audit findings.
    Last year, the Inspector General produced some 80 findings 
and recommendations related to the financial system and 
statements. To date, we've closed about three-quarters of 
these, and the rest will be resolved later this fiscal year or 
early next fiscal year. Our goal, however, is to reduce 
significantly the number of audit findings and recommendations, 
financial and other, through a combination of better systems 
and policies and much better training of our staff.
    We believe, Mr. Chairman, that the remediation plan is 
already producing better financial management at USAID, and 
that we will continue to improve in the coming years. One 
indicator of this will, we hope, be the IG's ability to audit 
our financial statements starting this year.
    I thank you, sir.
    [The prepared statement of Mr. Nygard follows:]

    [GRAPHIC] [TIFF OMITTED] T7918.016
    
    [GRAPHIC] [TIFF OMITTED] T7918.017
    
    [GRAPHIC] [TIFF OMITTED] T7918.018
    
    [GRAPHIC] [TIFF OMITTED] T7918.019
    
    [GRAPHIC] [TIFF OMITTED] T7918.020
    
    [GRAPHIC] [TIFF OMITTED] T7918.021
    
    Mr. Horn. We thank you. Does any other member with you want 
to say anything at this point that may have been missed?
    OK. I have a lot of feeling for the Agency for 
International Development. You have a very important mission. 
And we will hope that the money the Congress gives the USAID 
will go to a good cause. And if we don't have a decent 
financial system and a decent management system, that money 
will not go for a decent cause. So you've got quite a 
responsibility ahead of you.
    Let me start on the debt collection, which is dear to my 
heart, since it's the law that I got passed in 1996. I'd like 
to know from both of you, can you estimate the amount of 
improper payments including duplicate payments, overpayments 
and payments for goods and services not received made each year 
by the Agency? Do we know where the debts are and how we----
    Mr. Smokovich. Mr. Chairman, Mr. Smokovich. USAID payments 
are generally made to contractors and vendors who have a 
business relationship with the Agency. We have been able to 
refer debt to Treasury which is stale debt, as you're well 
aware of. We have found no substantial problem with erroneous 
payments in the Agency.
    Mr. Horn. How stale is the debt?
    Mr. Smokovich. Mr. Owens.
    Mr. Owens. Our administrative receivables are normally no 
more than a year old when they're referred to Treasury. I don't 
have those exact figures with me, Mr. Chairman. We can provide 
them.
    Mr. Horn. If you could, we'll have a place in the record at 
this point.
    [The information referred to follows:]

    In 1999, 13 cases were referred to Treasury with a value of 
$1,205,349.23. During 2000, 11 cases were referred to Treasury 
totalling $661,938.77 and as for 2001, we have referred on case 
for $456,766.14.''

    Mr. Horn. Without objection if you could put a letter in as 
to where are we on that particular debt, how--because people 
we've found--and this is what every debt collector knows, when 
you don't have much communication with a person that owes the 
debt, that they just think it's a grant. And we're not in the 
grant business. We're in a lot of these things. You're in a lot 
of grant business because of humanitarian groups that are 
trying to do that.
    Mr. Smokovich. Mr. Chairman, let me add one comment on 
that. The IG has raised some issue with our administrative 
receivables. There's about $48 million out there. Those are a 
small part of our portfolio, and we have followup processes in 
place in Washington, which will be helped by the new accounting 
system, because we'll be able to book them, but in the field, 
those are handled essentially on cuff records. But we do have 
good controllers and executive officers out there who do 
followup with our people. And we do run a fairly aggressive 
drill on delinquent credit card debt. We brought that down 
dramatically last year and even more dramatically this year.
    Mr. Horn. Does the Agency have contracts with the private 
debt collectors to get at delinquent debts?
    Mr. Smokovich. We are using the private debt collection 
contractors that the U.S. Treasury has put in place.
    Mr. Horn. Through the financial management?
    Mr. Smokovich. Yes, sir.
    Mr. Horn. Well, they do a good job. So hopefully we can get 
some of that money back.
    What are the processes that the Agency used to recover 
them? You say you turn it all over to the financial management 
group, or is there anything else you do like when somebody 
picks up the phone and says look, you have an obligation here. 
What are you going to do about it?
    Mr. Smokovich. There are two processes at work there. One 
is where it's a business related debt. When the debt becomes 
stale, that debt is referred to the Treasury. On our own 
internal administrative debt, we have a process in place where 
our accounting and financial shop will followup with employees, 
and I actually get involved in those to make sure that we don't 
have to send any of those people to Treasury for offset. So 
it's a fairly active approach.
    Mr. Horn. How are the recovered payments accounted for in 
the Agency's financial statement?
    Mr. Smokovich. In the past, we had not been able to book 
those into the accounting system. This year we're beginning to 
do that. Where we have an account receivable recorded, that's 
one of the things we're effectively doing at the end of the 
year, establishing that record on the financial statements of 
the Agency.
    Mr. Horn. Well, that's good news. And I hope to see it in 
all future balance sheets.
    Are the contractors required to notify the Agency about 
these overpayments? And what do you do about it? You've got how 
many contractors that deal with USAID?
    Mr. Smokovich. I'm not sure I understand your question 
fully, but right now with USAID Washington, we have 12,000 
vendors in our file composed of grantees and contractors. One 
of the things we're able to do with the accounting system 
implementation is clean that record up. At one point, it looked 
like we had as many as 18,000.
    Mr. Horn. What do you have overseas?
    Mr. Smokovich. I don't have that number. I could get that 
number for you.
    Mr. Horn. If you could, we'll put it in the record at this 
point.
    And is it just a lost battle when you've got a number 
overseas? How difficult is that for you to get it in a foreign 
country in a foreign nation?
    Mr. Smokovich. It depends on country law, but our people 
typically are fairly high grade professional CPAs, MBAs, so 
they know the processes. The difficulty we have is getting 
access to the data, as you well know. Without the corporate 
systems, everything turns into a data call from us to a 
mission.
    Mr. Horn. And what kind of response do you get from the 
mission? Do they say, ``don't bother me?''
    Mr. Smokovich. No, sir, they're very professional. They 
usually turn it around in a day. The only trouble we have 
sometimes is understanding what time of day it is over there.
    Mr. Horn. Well, I can understand that. But if you could 
just put in the record at this point how many contractors 
overseas, where there were overpayments or underpayments, what 
happened, just in a generic way. I'm not asking to you go 
through every single one, but somebody somewhere must have some 
feel for whether they just defaulted and/or they got the job 
done.
    And were the contractors required to pay interest to the 
government on overpayments? How is that doing?
    Mr. Smokovich. Yes, they are.
    Mr. Horn. OK. Put a little something in the record on that 
at this point, too.
    What steps can Congress take to help facilitate the 
identification and recovery of overpayments? And I really asked 
that of the Inspector General. You've looked, I take it, at 
some of these questions of loans and payments, overpayments, 
underpayments, all the rest. In the Pentagon we have a lot of 
that. And I don't know the degree to which that has happened in 
USAID. But with missions all over the world, I can certainly 
see a lot of strange things would happen. And have you sent 
some of your people out to where things really happen in 
different continents and seen what's happened on loans that 
went to an agency and they didn't do a thing about it? Or do we 
just sit here in Washington to be----
    Mr. Crandlemire. One of the things that we've been working 
with the Office of Procurement on is a process where in it 
introduces more discipline into the recovery of questioned 
costs that arise out of audits. Historically, USAID has not 
pressed its contractors and grantees sufficiently to get these 
moneys in. This has resulted in a number of recommendations 
building up where USAID needs to make management decisions, and 
it's just not good business.
    Mr. Toby Jarman, the Assistant Inspector General for Audit, 
and I have worked with Mr. Mark Ward, Director for procurement, 
who recently came in from USAID Moscow. We've come to an 
agreement where we're going to introduce some additional 
disciplines into the grantee and contractor community.
    One of the things that Mark has agreed to do is when an 
audit report comes out, speak very directly to the grantee and 
to the contractor, and in that speaking, let them know that the 
entity has been doing business with USAID for some time; the 
entity is a sophisticated entity. We need to get these question 
costs supported and get these moneys returned. This is about 
doing business.
    Mark has been very good with us on that. He's invited Mr. 
Jarman and myself to speak to trade groups to get this idea 
across. It has been, I think, received relatively well. We have 
seen a significant reduction in a number of recommendations 
that did not have a management decision. It's about a 
discipline. It's about a process to do business in a more 
orderly fashion. I think we're getting there in this particular 
area, and that's one step toward reducing the amount of 
outstanding questioned costs.
    Mr. Horn. I turn to the ranking member, the woman from 
Illinois, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. Mr. Nygard, did 
you say that you thought that USAID would be able to receive an 
opinion this coming year?
    Mr. Nygard. What I said, Ms. Schakowsky, was that the 
Inspector General has agreed to audit our financial statements 
this year. I think that this is a major step forward. As Mr. 
Mosley said in his testimony, in the past, there has been a 
concern about the amount of actual work that would have to go 
in to trying to do an audit. And if I heard him correctly, he 
was saying that as of this year, we now have a system in place 
with our new accounting system, and if we implement the 
interface between the field and Washington where it will be 
possible for the Inspector General's audit staff to do an audit 
of our financial statements, coming out of that ordinarily will 
be an opinion.
    Ms. Schakowsky. As the chairman said, the earlier panel was 
dealing with the Department of Defense, the largest agency, and 
USAID, one of the smallest. How do you account for--is there 
something unique about USAID that has made these problems seem 
so difficult to resolve over the last several years?
    Mr. Nygard. Well, for one thing as I said earlier, we were 
burdened with the fact that we tried to build our own custom 
built financial and comprehensive information system for the 
Agency. And in retrospect, that was a mistake 6 years ago. Now 
we're using commercial off-the-shelf software, which is going 
to be much more effective. We've also had the difficulties, the 
accounting difficulties that I summarized in my statement, and 
one also has to realize that as the chairman noted earlier, we 
have 70 overseas posts and 38 accounting stations overseas 
where we have standard accounting systems. It's a complex 
situation even given the relatively small size of our agency 
compared to the Department of Defense. So we have complexities, 
but we've had problems, some of which have clearly been of our 
own making.
    Ms. Schakowsky. I wanted to ask you about the overseas 
operations. My understanding that most of the financial 
management improvements have been at the Washington offices. 
When will improvements made at headquarters be realized in the 
field offices?
    Mr. Nygard. I think we're constantly making improvements, 
both in Washington and overseas, but specifically we plan to 
roll out the accounting system that we have installed in 
Washington to our overseas missions, probably starting in the 
fiscal 2003 timeframe. Doing so requires some information 
technology infrastructure work to be completed before we do it. 
So it will probably be about 2 years from now before we're able 
to put the system we call Phoenix out worldwide.
    Ms. Schakowsky. Meaning that you would start now but it 
wouldn't be completed until 2003? These timeframes are daunting 
to me. They just seem so long.
    Mr. Nygard. They seem long to us, too. I agree. In the next 
fiscal year we will be doing pilot testing at several missions 
overseas to make sure the system works. One of the difficulties 
we had when we tried to put the so-called new management system 
out to the field 6 years ago was that there was no real pilot 
test. They assumed that what worked in Washington would work 
overseas. That wasn't the case. There were communication 
problems, technology problems. We're going to make sure that we 
do perfectly adequate systems testing and pilot testing before 
we put it out.
    That will take some time. As I said also, the 
communications between the field in Washington, communications 
infrastructure, some of which goes through the Department of 
State and some of which goes through our own satellites, needs 
to be heavied up somewhat at a number of our missions in order 
to accommodate the load that the new accounting system will put 
overseas.
    So it is a matter of not just the accounting system itself, 
but the technology that goes along with it. When we put it out 
this time, we don't want it to fail as it did 6 years ago.
    Ms. Schakowsky. USAID reports that it has developed a model 
security program which has been selected as a best security 
practice by the Federal Chief Information Officer Council, yet 
the Inspector General reports that its recommendations on 
reporting an effective computer security program has not been 
fully implemented.
    I understand it is supposed to be scheduled for 2002. Is 
that what I heard you say?
    Mr. Nygard. That's correct.
    Ms. Schakowsky. What is the status right now of computer 
security at USAID?
    Mr. Nygard. We have made major progress in computer 
security. As I said earlier, we have worked--our computer 
security professionals have worked with the Federal CIO Council 
in developing and taking the lead in establishing best 
practices for information technology security. We have built a 
computer security risk assessment and certification process 
that we have put in and implemented.
    The new accounting system, Phoenix, was certified as secure 
before we implemented it, something we had not done with our 
previous systems.
    A number of our legacy systems have been certified 
compliant, and this year, later this year, the software for our 
overseas accounting system, which has existed for more than a 
decade, will undergo a similar certification.
    Over the course of this year and the next fiscal year, we 
will be doing security risk assessments and improvements at 
each one of our overseas missions. This is unfortunately not 
something we can do just from the center. It is a matter of 
visiting each of the 38 accounting systems stations overseas 
and making the necessary fixes at them. That is really what is 
going to delay the closing of that material weakness until next 
year.
    But we have a plan. We have made excellent progress to 
date. We have actually been able to move up the completion date 
from what had originally been 2003 to next year, so we feel we 
are moving in the right direction, though we are not there yet.
    Ms. Schakowsky. I will just ask a question about the old 
system, the pre-Phoenix system.
    Again, to me it seems like it took an awfully long time to 
figure out that it was broke and needed fixing. It sounds like 
it never really worked very well.
    Why didn't you see those changes made earlier?
    Mr. Nygard. Actually, I don't mean to make humor of a very 
serious situation, but I almost said, when we found out that we 
were having serious problems with this back in 1997, and I was 
not in my present job at that time, I said, why can't we just 
buy something like Quicken and plug it in?
    It does not work like that. IBM, as I mentioned in my 
statement, carried out a study for us in 1997-1998. They made 
recommendations as to how we should proceed. We brought on 
board a very capable systems integration firm that has helped 
guide us as we have gone ahead.
    We then had to go through the procurement of a new 
accounting system to look at what was available. We procured 
this Phoenix system, which is what we call it, which is really 
American Management System's Momentum financial software, at 
the end of fiscal year 1999, so it took a year and a half to 
procure that system. Then it took another year to configure it.
    As I said, we didn't make any basic changes in the 
software, but each agency has somewhat different ways of doing 
business, so it took all of fiscal year 2000 to get the system 
ready to implement. Then we did extensive testing. It takes 
also an awful lot of training of individuals so they will be 
able to understand what they are doing.
    At the end of fiscal year 2000, at the beginning of this 
fiscal year, we completed the testing and training so when we 
did implement the new system, it went quite smoothly, I would 
say. Nothing ever goes without bumps and bangs, but that 
preliminary work that we did made for a good implementation. We 
worked very closely with Mr. Mosley and his folks in doing 
that.
    Ms. Schakowsky. In other words, though, it has taken 4 
years from the time when you knew you were going to have to 
change it for that change to be not quite completed, because it 
is only the Washington office?
    Mr. Nygard. Two years from the time we knew we had a 
problem until the time we bought the new system, and another 
year and a quarter to implement in Washington, yes.
    Ms. Schakowsky. That is a long time.
    Mr. Nygard. Yes.
    Ms. Schakowsky. Let me ask a final question. Material 
discrepancies exist between USAID loan information maintained 
by a private bank and USAID's records.
    The Inspector General reported that on September 30, 2000, 
the total discrepancy was $459 million. USAID subsequently 
identified and reconciled $366 million of the discrepancy, and 
made a one-time adjustment of $93 million to reconcile the 
difference.
    Could you explain the discrepancy, how it occurred, and 
what is being done to reconcile it?
    Mr. Owens. The USAID loan portfolio dates all the way back 
to the post World War II reconstruction, the Marshall Plan, up 
until the late eighties, when we basically quit making direct 
loans under our programs.
    Over the years we maintained our own home-built loan 
accounting system, and in 1998, working with the Office of 
Management and Budget and the Inspector General, we made a 
decision to out-source our loan servicing to Riggs Bank here in 
Washington. As part of that process, we did a complete 
reconciliation with Riggs Bank, and that is where we identified 
those differences.
    We were able to resolve most of those differences after 
doing the complete reconciliation, but the remaining portion we 
could not determine. We agreed with the IG, the Inspector 
General's Office, to make a one-time adjustment to bring our 
general ledger accounts into agreement with the individual loan 
records. So now our ledgers and our individual loan records are 
in balance.
    Ms. Schakowsky. Thank you.
    Mr. Crandlemire. I would like to add that in the years 
prior to this effort, where they went out and did 
reconciliations, our standard practice of confirming balances 
with the grantees and the debtors did not go well. We could not 
get agreement. There clearly were many, many years of error and 
bad accounting that had gotten in there, not through intention, 
but it just happened.
    This was a good effort and it resulted in some good numbers 
where now we can do a standard confirmation, which is a normal 
audit technique to get a third-party confirmation. This has 
vastly improved the efficiency of our audit process for this 
particular line item, which is one of the largest on USAID's 
balance sheet. It is a good thing.
    Mr. Mosley. I might also add, Ms. Shakowsky, in terms of 
your concerns about what took so long, I have to be very honest 
and say part of the problem on why it took so long was 
communications. We now have a management that agrees and is 
working with us. I think that will make a tremendous difference 
in terms of getting the problems corrected.
    You also talked about the problems in the field. I think I 
should point out that even though they have not exposed the 
field to the use of the new Phoenix system yet, the MACS system 
that is being used in the field is the system that the OIG has 
found the least number of problems with, so the data is being 
tracked. The difficulty is that it is not as quickly interfaced 
into the Washington system, and it certainly slows managers in 
being able to have access to that system and manage it. But 
from the standpoint of having the information, it is there. 
That is one of the best systems that they have.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Mr. Horn. Thank you.
    I just have a few round-up questions, if you will.
    You have now been under the Department of State for almost 
1 year or so. Has that changed anything in terms of either 
financial management or management systems? What has happened 
in that year?
    Mr. Nygard. Let me start off responding to that. Perhaps 
Mr. Mosley will want to add something else.
    Under the new legislation, the Agency for International 
Development remains a separate agency, but our Administrator 
reports directly to the Secretary of State, rather than to the 
President, as previously. This has engendered a much closer 
working relationship with the State.
    We are looking for areas where administrative efficiencies 
can be realized. Obviously, they are overseas, we are overseas. 
We are co-located with them in one-third of our overseas posts. 
Our objective is, wherever they are building a new embassy 
where we are located, to co-locate with them, for efficiency's 
sake and also for security's sake.
    In terms of financial management systems, we do not have 
integrated systems with them. They are using AMS Momentum now, 
starting overseas. We are using AMS Momentum.
    The roles of the agencies are somewhat different. 
Obviously, the great majority of the Department's money tends 
to be administrative money: salaries, expenses, that sort of 
thing. The great majority of our money is program money. So 
again, Mike Smokovich and his staff are working with the CFO's 
staff over at State to find areas where we can work together.
    At this point we have not worked to merge our systems, but 
clearly administrative efficiencies, particularly in overseas 
operations, are the goal of both organizations.
    Mr. Horn. One of the things that this subcommittee cares 
about is computer security. I just wondered, is your computer 
security and is the State's computer security, which we will 
ask them about, and a number of other agencies--some of them 
say, hey, we don't have to worry about that because we are 
completely off where they cannot get us.
    When I go to a place such as Italy, and they are now the 
sixth largest economy in the world, they are quite correctly 
worried about the access to private sector computers that could 
bring down the whole economic industry. We could also be 
brought down.
    I notice--when you say use of a satellite, that made me 
wonder, with some of these people who have quite a few billion 
dollars to be rogue countries or rogue terrorists or whatever, 
I wondered, to what degree are you looking out for that? Does 
that come under your particular bailiwick in USAID?
    Mr. Nygard. Yes, I think it does.
    When we talk about information security, obviously there 
are two totally different things. One is information systems 
security, which clearly comes under my bailiwick. The other is 
information security, which has to do with classified 
information, which would come under the purview of the Director 
of Security. In terms of that, we are vividly concerned with 
that.
    Mr. Horn. Is that person reporting to you, or is that a 
State Department person?
    Mr. Nygard. The Director of Security in terms of classified 
information, protecting, this sort of thing, reports directly 
to the Administrator of the Agency. But, obviously, our 
computer security people work very closely with them. When we 
are looking at information security, we also have to be looking 
at computer security. We are working together closely on that.
    The man we have heading our computer security program was 
brought in from the private sector. He is very experienced, as 
I said in my testimony. He has taken the lead with the Federal 
CIO Council. He has been working with Fernando Burbano, the CIO 
over at State. There are a number of areas on which they are 
working together.
    Our prime focus, of course, is ourselves, but we are not 
just looking at ourselves.
    Mr. Horn. Would you like to comment, Mr. Mosley?
    Mr. Mosley. Yes. From our perspective in terms of being 
under the Secretary of State, it has no real effect on our real 
data because the data is kept separately.
    However, we could work with the State IG. We have periodic 
meetings, a minimum of quarterly, to talk about areas where we 
can join our audit efforts and make sure we are giving 
coverage.
    We also have field people, where State does not have people 
in the field, so we are able to supplement some of our reviews 
by using the people in the field.
    One of the areas that does involve the financial systems is 
the transfer of funds under section 632 of the Foreign Service 
Act. We have worked closely with State and the other Federal 
agencies to try and make sure when those funds are transferred, 
that they are properly recorded in the financial records of 
both our agency and the agency they are transferred to, and 
that correct tracking is being accomplished.
    Mr. Horn. Each year in some of these statements we have 
heard the same message, in a way, that improvements have been 
made but much remains to be done.
    What do you think can be done in this particular fiscal 
year that was not done last year?
    Mr. Nygard, what do you think?
    Mr. Nygard. I think the four problem areas that we 
discussed earlier, where we are working closely with the 
Inspector General, will move a long way to both--our main goal 
is to improve financial management. As a result of that, we 
hope to get our financial statements audited. So that is a 
major thing.
    The implementation of our new accounting system clears up 
the Washington accounting, which has been a major problem. As 
Mr. Mosley has said, our field accounting has been less of a 
problem, but it is critically important that at the end of this 
fiscal year, we have an adequate interface where the 
information from the field can be brought in and put into our 
general ledger, along with the Washington data. That will be a 
major goal for us to do this year.
    I think if we accomplish those things this year, we will be 
in quite good shape. Obviously, what will remain to be done 
will be to put the same accounting system overseas in the 
course of the next 2 years.
    Mr. Horn. What kind of General Schedule personnel can you 
get to help solve that problem? I think part of our problem in 
a few places, and I think of the Columbus operation in Ohio, 
which is under the Army's jurisdiction, but I was sort of 
shocked when I saw the low level of grades in terms of people 
looking at contracts and this kind of thing, and following up 
on it.
    So do you have any problems on personnel?
    Mr. Nygard. We have had to use a higher proportion of 
contractors, I think, because we have not had enough capable 
financial management personnel. I will let Mr. Smokovich talk 
to that. But my feeling is it is kind of a middle generation. 
We have accounting technicians at relatively junior grades, and 
we have a number of very capable people at the most senior 
grades, but it is kind of the GS-13, 14, 15, where we have been 
lacking and where we are trying desperately to recruit 
qualified people.
    Mr. Smokovich, do you want to add to that?
    Mr. Smokovich. In the downsizing days we lost some of our 
best people, before I came there. We have been blessed in this 
project effort to have senior Foreign Service officers and GS-
15 level and SES level people dedicated to the project, but we 
do have a challenge in rebuilding the organization, because, as 
you say, people solve problems, systems don't.
    In the field, we are uniquely blessed in the sense that we 
have CPAs, MBAs, in the Foreign Service, but we are losing them 
to a competitive economy.
    The other thing we have going for us is very strong Foreign 
Service national employees. I have about 650 people worldwide 
who do our finances for us. Our strength is less in our systems 
than in our people.
    Mr. Horn. Are we reaching out into the colleges of this 
country to try to find people? I would think that is a very 
attractive situation where you have people who feel good about 
themselves and good about our country, and get a chance to see 
and do something for the good of mankind.
    Mr. Smokovich. The answer is yes, but Rick might want to 
respond to this, too. USAID is uniquely able to attract people 
because of its mission. We have a great mission. We have 
started hiring new entry professionals.
    When I came 2 years ago, there were no new people. We are 
starting to get them in now. Rick?
    Mr. Nygard. I would say two things. We have really two 
categories of employees in USAID: We have Civil Service 
employees who work in Washington, and Foreign Service officers 
who work both overseas and in Washington.
    For the Foreign Service, we have adopted a comprehensive 
work force planning system that has resulted in the new entry 
professionals that Mr. Smokovich was talking about, including 
comptrollers. For the most part, these people are not right out 
of college but are in their thirties, have experience, and most 
have overseas experience.
    I was introduced to one this morning who spent 2 years as a 
contract comptroller in our mission in one of the Central 
American countries, so that is one area.
    The other is Civil Service, where Washington systems need 
to be improved. There I can tell you that our work force 
planning priorities for Civil Service people include three 
categories of people, all of whom happen to fall under my area: 
information technology, procurement, and financial management. 
I'm not saying one is more important than the other. Those are 
our priorities.
    We are going after college graduates. As Mr. Smokovich 
said, the mission of our Agency is indeed something that is 
quite attractive to people, even if they are only going to be 
working in Washington. So that is helping us bring people on.
    Mr. Horn. I would hope so, because, as you say very 
eloquently, it is important. We should do that, and we should 
be walking around the campuses of the country and seeing if we 
can pick people up, because we have a real problem with human 
infrastructure, if you will, with a lot of good people retiring 
and going out of the system. We need to have the opportunities. 
Where else do we have an opportunity like this, either in the 
services or the Civil Service? That is where we need a lot of 
help.
    We ought to be starting in kindergarten in terms of logic 
and everything else, and not be importing people from abroad. 
We ought to be training our own people and educating them, and 
retraining them.
    Is there anything else any of you want to make a point on 
before we close down? Mr. Inspector General.
    Mr. Mosley. No, sir. Thank you.
    Mr. Horn. Mr. Smokovich.
    Mr. Smokovich. Mr. Chairman, I think this is a remarkable 
hearing. You see five people who are all dedicated to fixing 
the problems of the Agency and getting an opinion on an audited 
statement, which has never happened before. So I am betting and 
I am hoping that our grade goes up the next time you do that.
    Mr. Horn. We look forward to it.
    We are in recess until 1:30. That is the Department of 
Agriculture.
    [Whereupon, at 12:20 p.m., the subcommittee recessed, to 
reconvene with other business at 1:30 p.m., this same day.]

