    Major Management Challenges and Program Risks: U.S. Agency for
    International Development (Letter Report, 01/01/2001, GAO/GAO-01-256).

    This report, part of GAO's high risk series, discusses the major
    management challenges and program risks facing the Agency for
    International Development (AID). GAO identified weaknesses in AID's
    management of its human capital. AID has, however, made efforts to
    improve this area, which include hiring additional foreign service
    employees, establishing a recruitment program, and improving employee
    training. AID needs to sustain its focus on these areas if it is to
    succeed in reforming its personnel system. GAO further found weaknesses
    in the are of financial management, information technology management,
    and data collection.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  GAO-01-256
         TITLE:  Major Management Challenges and Program Risks: U.S. Agency
    	     for International Development
          DATE:  01/01/2001
       SUBJECT:  Risk management
    	     Accountability
    	     Financial management
    	     Information resources management
    	     Human resources utilization
    	     Personnel management
    	     Performance measures
    	     Internal controls
    	     Program evaluation
    	     Data collection
    IDENTIFIER:  High Risk Series 2001
    	     GAO High Risk Program

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    GAO-01-256

    Performance and Accountability Series

    January 2001 Major Management Challenges and Program Risks

    U. S. Agency for International Development

    GAO- 01- 256

    Letter 3 Overview 6 Major

    10 Performance and Accountability Challenges

    Related GAO 30

    Products Performance

    31 and Accountability Series

    Lett er

    January 2001 The President of the Senate The Speaker of the House of
    Representatives

    This report addresses the major performance and accountability challenges
    facing the U. S. Agency for International Development (USAID) as it seeks to
    support the people of developing and transitional

    countries in their efforts to achieve enduring economic and social progress
    and to participate more fully in resolving the problems of their countries
    and the world. It includes a summary of actions that USAID has taken and
    that are under way to address these challenges. It

    also outlines further actions that GAO believes are needed. This analysis
    should help the new Congress and administration carry out their
    responsibilities and improve government for the benefit of the American
    people.

    This report is part of a special series, first issued in January 1999,
    entitled the Performance and Accountability Series: Major Management
    Challenges

    and Program Risks. In that series, GAO advised the Congress that it planned
    to reassess the methodologies and criteria used to determine which federal
    government operations and functions should be highlighted and which should
    be designated as “high risk.” GAO completed the assessment,
    considered comments provided on a publicly available exposure draft, and
    published its guidance document, Determining Performance and Accountability
    Challenges and High Risks (GAO- 01- 159SP), in

    November 2000. The full 2001 Performance and Accountability Series contains
    separate reports on 21 agencies- covering

    each cabinet department, most major independent agencies, and the U. S.
    Postal Service. The series also includes a governmentwide perspective on
    performance and management challenges across the federal government. As a
    companion volume to this series, GAO is issuing an update on those
    government operations

    and programs that its work identified as “high risk” because of
    either their greater vulnerabilities to waste, fraud, abuse, and
    mismanagement or major challenges associated with their economy, efficiency,
    or effectiveness.

    David M. Walker Comptroller General of the United States

    Overview The U. S. Agency for International Development (USAID), which is an
    independent federal government agency that receives overall foreign policy
    guidance from the Secretary of State, implements U. S. foreign economic and
    humanitarian assistance programs. In recent years, USAID's programs have
    been funded at about $6 billion annually. The agency has programs in

    about 125 countries promoting a wide range of objectives related to economic
    growth and agricultural development; population, health, and nutrition; the
    environment; democracy, governance, and the rule of law; education and
    training; and humanitarian assistance. Its staff operates in often difficult
    environments and under evolving program demands. These present human capital
    management and performance measurement challenges that can affect the
    efficiency and effectiveness of its programs.

    Human capital management issues impact USAID strategic objectives

    ? Better performance data could help USAID assess programs and allocate
    resources

    ? Additional challenges to building a high- performing organization

    USAID's ability to effectively carry out its foreign assistance mission is
    directly affected by human capital challenges. Since the early 1990s, we
    have reported on USAID's limited progress in addressing human capital

    reforms related to personnel administration, career management, training,
    and foreign service assignments. Moreover, severe budget cuts resulted in
    significant workforce reductions- 29 percent from 1995 to 2000. More
    recently, USAID has reported that more than a third of its foreign service
    staff is eligible to retire and that current attrition rates, if continued,
    could affect the agency's ability to achieve its overseas mission as early
    as 2002.

    Recognizing this problem, USAID has initiated a number of actions. The
    agency initially focused on increasing the number of its foreign service
    employees, establishing a recruitment program to replenish the serious
    attrition of foreign service staff that it has experienced in the field.
    USAID also envisions that missions with certain management, accounting, and
    administrative skills will share those staff resources with neighboring
    missions.

    USAID is also studying ways to more effectively deploy staff in response to
    emergency humanitarian situations and natural disasters- one of the agency's
    major strategic objectives. It is considering establishing a “ready
    reserve” of employees and, possibly, contractors with the
    administrative skills needed to rapidly respond to natural disasters such as
    the hurricanes that struck Central America and the Caribbean in 1998. It is
    critical that USAID sustain its focus on these human capital issues if the
    agency is to effectively implement future U. S. foreign assistance programs.
    USAID's human

    capital problems can be seen as part of a broader pattern of human capital
    shortcomings that have eroded mission capabilities across the federal
    government. (See our High- Risk Series: An Update (GAO- 01- 263, January
    2001) for a discussion of human capital as a newly designated governmentwide
    high- risk area.)

    USAID is facing continuing difficulties in identifying and collecting data
    that would enable it to develop reliable performance measures and accurately
    report the results of its programs. This is especially true for its
    democracy,

    governance, and rule of law programs because political and social phenomena
    cannot be explained with scientific precision. For example, in October 2000,
    we reported that the United States provided assistance to Haiti to improve
    its justice system generally without establishing conditions such as
    specific goals, performance measures, and time frames; and we recommended
    that future assistance be linked to performance- related conditions. 1 The
    urgent nature of its humanitarian assistance programs and the many players
    involved in most emergency situations also complicate USAID's attempts to
    establish accurate and reliable performance data. USAID has taken some steps
    to correct the problems with the data it collects to measure its
    performance, for example, developing and disseminating lists of indicators
    that can be used by field offices when seeking appropriate tools to measure
    performance. USAID is

    also working with the USAID Inspector General to assess its progress. While
    USAID has made a serious effort to develop improved performance measures, it
    has not yet achieved the uniform, high- quality database needed to permit
    cost- effective analysis of the results of its programs. In addition, USAID
    continues to face challenges in implementing an integrated information
    management system and improving its financial management systems that affect
    its ability to effectively manage its programs as well as ensure that it has
    adequate internal controls. The agency has recognized that it needs to
    address its

    problems and has made some progress, but further action is needed. For
    example, USAID needs to implement a process for prioritizing information

    1 Foreign Assistance: Any Further Aid to Haitian Justice System Should Be
    Linked to Performance- Related Conditions (GAO- 01- 24, Oct. 17, 2000).

    technology investments. Without such a process, USAID is at risk of
    allocating resources for projects that do not represent the highest return
    on investment for the

    agency. USAID has also made progress toward correcting its long- standing
    internal control and financial system deficiencies. Nevertheless, the
    Inspector General was again unable to express an opinion on the agency's
    financial statements for fiscal year 1999. Until USAID can fully resolve its
    financial management problems, it will not be able to routinely provide
    agency managers with complete, reliable, and

    timely financial information needed to make sound, cost- effective decisions
    that promote effective and efficient use of federal funds.

    Major Performance and Accountability Challenges

    The U. S. Agency for International Development carries out U. S. foreign
    economic and humanitarian assistance programs that in recent years have
    averaged about $6 billion yearly. USAID operates in about 125 countries,
    with resident staff in 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. The agency supports strategic objectives related to economic
    growth and agricultural development; population, health, and nutrition; the
    environment; democracy, governance, and the rule of law; education and
    training; and humanitarian assistance. Human Capital

    Human capital management has been raised as an issue Management in many
    major studies of the agency, including our 1993 Issues Impact report. 1 The
    report concluded that USAID's lack of a

    USAID Strategic comprehensive workforce planning and management Objectives

    capability was affecting its ability to deliver assistance efficiently at
    the mission level. USAID has acknowledged the problem but faces shifting
    challenges as its program evolves and the size of its workforce shrinks. The
    agency has taken improvement measures,

    particularly in its foreign service workforce, but has not yet established
    and integrated a comprehensive workforce planning and management system into
    its overall strategic objective framework. Human capital issues have also
    impacted USAID's ability to respond to emergency humanitarian situations. In
    monitoring USAID's response to the Hurricane Mitch disaster, we

    found that USAID had difficulty in fielding required staff to plan and
    implement its assistance program. The challenges the agency faces in
    attempting to establish an effective approach to human capital 1 Foreign
    Assistance: AID Strategic Direction and Continued Management Improvements
    Needed (GAO/ NSIAD- 93- 106, June 11, 1993).

    management are reflected in the many changes that USAID has faced since it
    was established in 1961. Its program emphasis has shifted from funding large
    infrastructure projects to funding basic human needs projects addressing
    such areas as hunger, illiteracy, and population pressures. As its program
    began to shift in the 1970s, USAID lost the contracting and management

    capabilities of its infrastructure project managers and recruited staff with
    technical skills in basic human needs activities. At about the same time,
    its U. S. direct- hire workforce began to decrease significantly.
    Consequently, USAID had to refocus its U. S. foreign service staff
    responsibilities from directly implementing social sector projects to
    planning, financing, and monitoring the projects implemented by host
    countries, contractors, and grantees. Further, as the number of U. S.
    direct- hire staff decreased, mission directors became increasingly reliant
    on other types of employees, such as foreign national direct- hire staff and
    personal service contractors, to manage mission projects being implemented
    by third parties.

    Thus, by the 1990s USAID had come full circle and had returned to being a
    contract- management and financing agency faced with the need to adapt its
    workforce accordingly. Figure 1 shows that the number of U. S. direct hire
    employees has decreased by about 50 percent over the last 20 years. In
    addition, USAID officials have noted that, similar to other government
    agencies, the

    number of USAID employees eligible to retire is increasing.

    Figure 1: USAID U. S. Direct Hire Staffing Since Fiscal Year 1980 500

    Number of direct hire staff 000 500 000 500 000 500 000 500

    0 1980 1985 1990 1995 2000 Fiscal years

    Source: U. S. Agency for International Development.

    The USAID personnel system has long been criticized as complex, costly, and
    unsuited to accomplishing the agency's mission. For example, the 1993
    National Performance Review report 2 recommended that USAID overhaul its
    personnel system. In December 1994, 2 From Red Tape to Results: Creating a
    Government That Works Better and Costs Less (Washington, D. C.: National
    Performance Review,

    Sept. 7, 1993).

    USAID began developing a human resources business area analysis to identify
    reforms and outline strategies for implementing improvements. By August
    1995,

    USAID had identified several areas for reform, including personnel
    administration, career management, training, and foreign service assignment.
    However, in our September 1996 review of the status of USAID's

    reforms, 3 we found that the agency had made little progress. USAID
    officials said that their reform efforts were delayed in fiscal year 1996
    because its personnel office devoted much of its resources to implementing
    the reduction- in- force and two furloughs. They also indicated that they
    planned to accelerate the pace of personnel reform in 1997.

    USAID's current human capital reform efforts are based on recommendations
    the agency's Workforce Planning Task Force made in a November 1997 report. 4
    The task force stated that USAID needs to improve its human capital
    management if it is to meet its objectives of maintaining its bilateral
    assistance leadership role and

    its comparative advantage of supporting a large overseas presence. Its
    recommendations fall into four broad categories: (1) establish a workforce
    planning process based on human capital priorities; (2) realign

    the workforce between Washington, D. C., and the field to reflect
    priorities; (3) make the workforce more flexible to allow greater movement
    between the civil and foreign services; and (4) maintain the highest quality
    staff through continuing professional development. USAID focused initially
    on realigning its workforce between Washington and the field. The task force
    had found that if the current foreign service attrition rate 3 Foreign
    Assistance: Status of USAID's Reforms (GAO/ NSIAD- 96- 241BR, Sept. 24,
    1996).

    4 Workforce Planning Task Force: Report to the Steering Group (Washington,
    D. C.: USAID, Nov. 26, 1997).

    continued, USAID's overseas presence would, by the year 2002, be reduced to
    the point that it would affect the agency's ability to achieve its mission.
    As shown in figure 2, the percent of USAID's foreign service staff eligible
    to retire will increase from about 34 percent this year to almost 57 percent
    in fiscal year 2005. The agency has since established a foreign service
    recruitment plan that aims to recruit between 80 and 90 personnel per

    year. Fiscal year 2001 will mark the third year in which USAID will hire
    staff under the plan. In addition to increasing its overseas staff, USAID is
    also exploring greater sharing of staff among missions. While a mission
    needs people with a certain set of skills to operate effectively, where
    those skilled employees are located is less important than having ready
    access to those skills when needed. For example, staff with certain
    management, accounting, and administrative skills are to serve more than one
    mission under USAID's

    plan. The task force envisioned that such “matrix missions”
    would share staff resources with neighboring missions, both receiving
    assistance from and providing assistance to neighboring missions.

    Figure 2: Percent of USAID Staff Eligible to Retire as of September 30,
    2000, and September 30, 2005 Eligibility date

    As of 9/ 30/ 00 As of 9/ 30/ 05

    0 10 20 30 40 50 60 Percent of staff eligible to retire

    Total Civil Service Foreign Service

    Source: U. S. Agency for International Development.

    USAID is also studying ways to improve its response to emergency
    humanitarian situations such as the sudden, large refugee flows that
    occurred in the Balkans during the 1990s and natural disasters such as the
    1998 hurricanes in Central America and the Caribbean. For example, we found
    that USAID faced delays in locating and fielding contract and other officers
    needed to implement the recovery program.

    USAID's Office of Foreign Disaster Assistance is often the first on the
    scene, as it was in the aftermath of Hurricane Mitch in Honduras and
    Nicaragua in October

    1998. USAID assessed its immediate assistance activities in a July 2000
    report and is now also attempting to deal with human capital issues that
    have surfaced in the longer- term reconstruction assistance USAID is
    providing to these countries. For example, small USAID missions had to
    increase staff to meet the demands of a large recovery program. In some
    cases, this involved setting up programs in sectors in which the mission had

    no existing activities. The missions also had to help other U. S. agencies
    with little or no overseas experience establish their programs as well as
    put in place controls and accountability measures for the assistance effort.
    USAID has also had difficulty filling some of the technical staff needs. For
    example, in our monitoring of the recovery assistance effort in Nicaragua,
    we found that, while project implementation had begun in early 2000, as of
    November 2000, 4 of 29 positions needed to support the recovery program had
    not been filled. We also found that both the Nicaragua and Honduras

    missions had difficulty carrying out their initial procurement activities
    because a single contract officer had to cover both missions until a second
    contract officer, assigned to Honduras, arrived in October 1999, more than a
    year after Hurricane Mitch hit Honduras. These problems affected USAID's
    effectiveness in responding to one of the largest hurricanes ever to hit
    Central America. This was evident in the delays USAID experienced in
    awarding contracts to replace housing and implement public works repair
    projects. The pictures below show Hurricane Mitch, typical damage caused by
    the hurricane, and a USAID housing assistance project in Honduras.

    Figure 3: Hurricane Mitch Strikes Central America in Late October 1998

    Source: NASA.

    Figure 4: Hurricane Mitch Property Damage in Central America

    Source: U. N. Hurricane Mitch Center.

    Figure 5: USAID- Assisted Construction Project to Build Permanent Housing in
    Rural Area of Honduras

    Source: GAO.

    USAID officials acknowledge that the agency has not addressed the need for a
    “surge capacity” to effectively respond to emergency situations
    and to design and implement any new programs resulting from the emergency
    assistance. However, USAID has recognized the need to have an effective
    means of rapidly assigning staff in post- disaster situations. One
    recommendation USAID's Workforce Planning Task Force made is for USAID to
    establish a reserve capability for carrying out inherently governmental
    functions, such as contracting

    officer functions, during emergencies. More generally, the agency is
    considering the following steps for mobilizing individuals currently working
    for USAID or other U. S. government agencies.

    ? Identify the range of competencies likely to be required in responding to
    predictable post- disaster situations. ? Develop standard position
    descriptions/ statements

    of work for quick reaction team members based on competencies and
    predictable post- disaster situations. ? Develop standard travel
    authorizations for quick

    reaction teams, including direct and nondirect hires and foreign service
    nationals, and preposition travel funds.

    ? Develop and maintain an inventory of available staff agencywide with the
    required competencies. ? Develop and maintain an inventory of external
    expert resources, such as other U. S. government agencies, and negotiate
    advance understandings.

    ? Develop standard operating procedures to rapidly call up and send staff to
    the field. These steps would provide a base of experienced staff who could
    be moved quickly in response to emergencies or unexpected program changes.
    However, USAID officials noted that, to implement the plan, the agency may
    need to increase slightly its recruitment targets for

    those skills that are most often required for emergency responses, with
    particular emphasis on contract officers. In responding to emergencies,
    USAID recognizes the need to have a database of potential human capital
    resources. USAID has had difficulty in establishing an effective management
    information system (see later

    discussion), and the agency does not currently have this system capability.
    However, the Office of Human Resources has identified a software application
    that can provide an integrated human resources system to meet these needs
    and has purchased a subscription for the software under an existing USAID
    contract with the General Services Administration.

    Better Performance USAID faces challenges in developing reliable Data Could
    Help performance measures and accurately reporting the

    USAID Assess results of its programs. Our work and that of the USAID

    Programs and Inspector General has identified a number of problems

    Allocate Resources with the annual results data that USAID's operating units
    have been reporting. Moreover, measuring the

    performance of USAID activities such as democracy and governance (including
    rule of law programs) and humanitarian assistance programs is inherently
    difficult because of the problems in identifying appropriate

    assessment tools and the complexity of the issues. In some instances, lack
    of reliable performance measures limits USAID's ability to use results data
    to allocate resources and to determine if its activities meet its

    strategic goals. For example, in our October 2000 report on U. S. assistance
    to improve the Haitian justice system, we recommended that future assistance
    be linked to obtaining such data. 5 USAID has acknowledged its problems and
    has undertaken a number of initiatives to address them. For example, the
    agency has begun a series of long- term evaluations to examine the
    effectiveness of activities in achieving results across country settings and
    goal areas. The Government Performance and Results Act of 1993 (the Results
    Act) (P. L. 103- 62) requires federal agencies

    to prepare performance plans that (1) establish performance indicators to be
    used in measuring or assessing the relevant outputs and outcomes of each
    activity, (2) provide a basis for comparing actual program results with
    established performance goals, and (3) describe the means to be used to
    verify and validate measured values. Our observations on USAID's performance
    report for fiscal year 1999 and its 2000 and 5 Foreign Assistance: Any
    Further Aid to Haitian Justice System Should Be Linked to Performance-
    Related Conditions (GAO- 01- 24, Oct. 17, 2000).

    2001 performance plans cited problems with USAID's performance data. For
    example, in commenting on USAID's fiscal year 2000 performance plan, we
    noted that the plan provided limited confidence that the

    agency had the capacity to obtain credible, resultsoriented, program
    performance information. We reported that USAID needed continued data
    improvements to achieve a uniform, high- quality database permitting cost-
    effective analysis of USAID's

    overall development assistance program. 6 USAID's Inspector General has also
    questioned the reliability, accuracy, validity, and completeness of the
    results data

    the agency's missions have reported annually. A 1999 review of data prepared
    by 18 missions for 1996 showed problems with the results reported for 83
    percent, or 252, of the 302 indicators that the Inspector General reviewed.
    7 According to the report, 77 indicators were not sufficiently supported.
    For example, at one USAID mission, an indicator was “the number of
    local government units having completed training modules.” However,
    the number of government units the mission reported as having completed the
    training only reflected local communes and, according to USAID officials,
    actually underestimated program success because it did not reflect the other
    types of government units in the country that should have been included in
    the scope of the project. According to the Inspector General, USAID's data

    problems existed because operating units did not always follow, or were not
    successful in following, prescribed USAID policies and procedures for
    measuring and 6 Observations on the U. S. Agency for International
    Development's Fiscal Year 2000 Performance Plan (GAO/ NSIAD- 99- 188R, July
    20, 1999).

    7 Audit of the Quality of Results Reported in USAID Operating Units' Results
    Review and Resources Request Reports Prepared in 1997 (Report No 9- 000- 99-
    006- P, Mar. 5, 1999).

    reporting on program performance. The Inspector General also attributed many
    of the problems it found at the operating units to insufficient support,
    direction, and oversight by USAID/ Washington bureaus to ensure operating
    units followed and effectively implemented prescribed USAID policies and
    procedures. We also noted in our observations on USAID's fiscal year 2000
    performance plan 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, many information sources have different reporting periods, and the
    data are often not available for a year or more afterwards.

    Without accurate and reliable performance data, USAID has little empirically
    verifiable assurance that its programs achieve their program objectives and
    related targets. These problems also impair USAID's ability to use
    performance information in making budget allocation decisions. For example,
    in October 2000 we reported that the United States provided assistance to
    Haiti to improve its justice system generally without specific conditions,
    such as specific goals, performance

    measures, and time frames. 8 We recommended that any further U. S.
    assistance to the Haitian police and judicial sector should be tied to
    specific, performance- related

    conditions. Developing performance indicators and assessing results is
    inherently difficult for some activities- democracy and governance, and
    humanitarian assistance programs, for example. In the past, USAID did not
    spend much effort on assessing the impact of its

    democracy programs. The purpose of these programs is 8 Foreign Assistance:
    Any Further Aid to Haitian Justice System Should be Linked to Performance-
    Related Conditions (GAO- 01- 24, Oct. 17, 2000).

    to strengthen democratic practices and institutions. One reason for the lack
    of performance data on democracy and governance programs was the difficulty
    in identifying appropriate assessment criteria and tools. Also, according to
    USAID officials, USAID's democracy programs are sometimes developed as a
    direct response to foreign policy interests identified by the U. S.
    Department of State, with the mere presence of U. S. assistance as the
    desired foreign policy outcome. Past reporting was based on gathering two
    types of data: data on actual events in the countries where USAID provides

    assistance and generally anecdotal evidence regarding the impact of
    individual program activities. The necessary, though missing, element
    required to assess

    the results of USAID's democracy and governance programs was data that
    provided direct linkages between USAID's programs and the events within the
    countries assisted.

    Obtaining agreement on the appropriate performance indicators to use to
    assess the performance of humanitarian assistance objectives is also a
    challenge for USAID because of the complexity of the goal and the number of
    organizational units, agencies, and implementing partners involved. For
    example, USAID's goal in providing humanitarian assistance is lives saved,
    suffering associated with natural or man- made disasters reduced, and
    conditions necessary for political and/ or economic development
    reestablished. One objective under this goal is to meet urgent needs in
    times of crisis.

    Extensive consultation was required with a number of technical agencies,
    including the U. S. Centers for Disease Control and Prevention, the World
    Health Organization, and individuals with emergency health and nutrition
    expertise, before USAID adopted the crude mortality rate (calculation of
    death rates to detect sudden changes) and the prevalence of acute
    malnutrition in children under 5 years of age as an experimental set of
    benchmarks against which to monitor the performance of its objectives.
    However,

    USAID noted that while the crude mortality rate is an important indicator,
    there were questions about the best methodology for collecting the
    information. Further, the crude mortality rate has been collected mostly by
    European nongovernmental organizations and not by U. S. organizations
    undertaking USAID- funded activities in humanitarian assistance. Corrective
    Actions

    USAID has taken a number of steps to correct the Underway

    problems with its reporting of performance results, and some of these
    efforts are being assessed by USAID's Inspector General. In June 2000, we
    reported that USAID had made progress in establishing outcomeoriented goals
    and developing indicators and targets that help measure overall results. 9
    Corrective actions included (1) developing and disseminating lists of
    indicators that can be used by field offices when 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 guidance to missions on how data should be managed to maximize
    their quality and utility, and (4) holding training seminars on managing for
    results for field officers. Also, in September 2000, USAID revised its
    automated directive system performance measurement

    and reporting policies to incorporate what has been learned from the first
    several years of implementation of the Results Act. Moreover, at USAID's
    request, the Inspector General is performing a series of audits of the
    internal controls at various operating units to assess the credibility of
    the performance data that the units report. 9 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, June
    30, 2000).

    USAID has also initiated a long- term effort to conduct agencywide
    evaluations of selected programs, including its democracy and governance
    programs, to address specific management questions about agency program and
    operational performance. This effort includes performing case studies to
    determine the impact of democracy and governance programs on political
    change and making assessments of subsectors, such as rule of law programs,
    to determine what types of programs stand the best chance of meeting their
    objectives. USAID also reports that it has made considerable progress in
    assessing its humanitarian activities since its

    adoption of crude mortality rates and the prevalence of malnutrition in
    children as indicators, according to an official of USAID's Bureau for
    Humanitarian Response. Assessments of humanitarian efforts at several test
    sites are underway using these indicators, and a pilot test showed that the
    methodology for collecting the data was feasible. However, USAID still faces
    the challenge of ensuring that other agencies and implementing partners

    adopt the use of the indicators across the board. Additional USAID faces
    long- standing challenges in implementing Challenges to an integrated
    information management system. USAID Building a began developing an
    automated new management High- performing system in 1994. The system was
    designed to consolidate Organization

    all of USAID's accounting, budget, personnel, procurement, and program
    operations into a single, integrated network with worldwide access. In 1996,
    USAID deployed the system worldwide before it was fully operational or
    adequately tested. Subsequent difficulties forced USAID to suspend its use
    of the system at its overseas missions. Since that time, USAID

    has undertaken a number of initiatives to correct the deficiencies,
    including the acquisition of commercial, off- the- shelf software for some
    management requirements.

    USAID has made progress in addressing the deficiencies of the management
    information system, but challenges remain. For example, it has developed an
    agencywide information technology architecture 10 that meets some of the
    Office of Management and Budget's (OMB) requirements. However, USAID needs
    to continue to develop and complete the target architecture at a sufficient
    level of detail that meets OMB's requirements. Moreover, although USAID has
    developed a prioritized list of financial management system investments, it
    did not devise its list in accordance with 1995 OMB guidance. 11 In
    particular, USAID has not followed OMB guidelines because it has not fully
    implemented a

    process for selecting information technology investments. OMB's guidelines
    require agencies to prioritize their planned investments by reviewing
    projects for relevance and feasibility; analyzing risks, benefits, and
    costs; prioritizing projects based on expected return on investment; and
    then determining the right mix of projects to fund. Without such a process,

    USAID is at risk of allocating resources for projects that do not represent
    the highest return on investment for the agency. Key Contact Jess T. Ford,
    Director International Affairs and Trade (202) 512- 4128 fordj@ gao. gov

    10 A “system architecture” is a blueprint or high- level
    description of how the systems will interact to accomplish agency mission
    requirements in a cost- effective manner. It focuses on describing the
    relationships among business functions, work processes, information flows,
    and technology. It also describes standards to be followed to ensure that
    systems will interoperate, provide security, and be implemented in a
    disciplined manner.

    11 Evaluating Information Technology Investments: A Practical Guide
    (Washington, D. C.: Office of Management and Budget, Nov. 1995).

    USAID has also had long- standing financial management weaknesses, although
    recently it has made steps toward correcting deficiencies. Nevertheless, the
    Inspector General was again unable to express an opinion on USAID's
    financial statements for fiscal year 1999 because USAID's financial
    management systems could not produce accurate, complete, reliable, timely,
    and consistent financial statements and performance information. USAID's
    inadequate accounting system makes it difficult for the agency to account
    accurately

    for activity costs and measure its program results. The Inspector General
    has continued to report that USAID's financial management system does not
    meet the federal financial systems requirements. Currently, USAID uses a
    variety of nonintegrated systems that

    require data reentry, supplementary accounting records, and lengthy and
    burdensome reconciliation processes. To resolve this long- standing problem,
    at the end of fiscal year 1999 USAID entered into a contract to replace

    the current financial management system. USAID plans to complete the system
    replacement during fiscal year 2003. The Inspector General also reported
    that while USAID had made significant improvements in its processes and
    procedures, it still has several material weaknesses in internal controls
    that impair the integrity of its financial information. Specifically, the
    Inspector General reported the following:

    ? USAID's financial systems do not meet federal financial system
    requirements, applicable federal accounting standards, and the standard
    general ledger at the transaction level.

    ? Computer security deficiencies expose USAID to the risk that resources and
    data will not be adequately protected from loss, theft, alterations, or
    destruction.

    ? While USAID has made significant improvements in its processes and
    procedures in place for reporting the Credit Receivables Program, problems
    remain. For example, USAID loan information maintained by a private bank had
    not been reconciled to USAID's accounting systems; USAID had not provided
    the most updated information to the bank on rescheduled loans; and USAID did
    not research and

    promptly resolve unapplied loan collections from borrower countries. ? USAID
    had not implemented adequate internal controls to permit accurate and
    reliable reporting of Fund Balance with Treasury accounts.

    ? USAID did not properly calculate and report accrued expenses and accounts
    payable. ? Advances to grantees were not properly controlled. 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 (P. L. 104- 208). To obtain its goal,
    however, USAID needs to continue its efforts to resolve its internal control
    weaknesses and to ensure that its replacement financial system is in
    compliance with federal financial system requirements.

    Key Contact Gregory D. Kutz Director, Financial Management and Assurance
    (202) 512- 9095 Kutzg@ gao. gov

    Related GAO Products Foreign Assistance: Any Further Aid to Haitian Justice
    System Should be Linked to Performance- Related Conditions (GAO- 01- 24,
    Oct. 17, 2000).

    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, June 30, 2000). Observations on the U. S. Agency for
    International Development's Fiscal Year 2000 Performance Plan (GAO/ NSIAD-
    99- 188R, July 20, 1999). Foreign Assistance: Rule of Law Funding Worldwide
    for Fiscal Years 1993- 98 (GAO/ NSIAD- 99- 158, June 30, 1999).

    Major Management Challenges and Program Risks (GAO/ OGC- 99- 16, Jan. 1999).
    Foreign Assistance: Status of USAID's Reforms (GAO/ NSIAD- 96- 241BR, Sept.
    24, 1996). Foreign Assistance: AID Strategic Direction and Continued
    Management Improvements Needed (GAO/ NSIAD- 93- 106, June 11, 1993).

    Performance and Accountability Series

    Major Management Challenges and Program Risks: A Governmentwide Perspective
    (GAO- 01- 241)

    Major Management Challenges and Program Risks: Department of Agriculture
    (GAO- 01- 242)

    Major Management Challenges and Program Risks: Department of Commerce (GAO-
    01- 243)

    Major Management Challenges and Program Risks: Department of Defense (GAO-
    01- 244)

    Major Management Challenges and Program Risks: Department of Education (GAO-
    01- 245)

    Major Management Challenges and Program Risks: Department of Energy (GAO-
    01- 246)

    Major Management Challenges and Program Risks: Department of Health and
    Human Services (GAO- 01- 247)

    Major Management Challenges and Program Risks: Department of Housing and
    Urban Development (GAO- 01- 248)

    Major Management Challenges and Program Risks: Department of the Interior
    (GAO- 01- 249)

    Major Management Challenges and Program Risks: Department of Justice (GAO-
    01- 250)

    Major Management Challenges and Program Risks: Department of Labor (GAO- 01-
    251)

    Major Management Challenges and Program Risks: Department of State (GAO- 01-
    252)

    Major Management Challenges and Program Risks: Department of Transportation
    (GAO- 01- 253)

    Major Management Challenges and Program Risks: Department of the Treasury
    (GAO- 01- 254)

    Major Management Challenges and Program Risks: Department of Veterans
    Affairs (GAO- 01- 255)

    Major Management Challenges and Program Risks: Agency for International
    Development (GAO- 01- 256)

    Major Management Challenges and Program Risks: Environmental Protection
    Agency (GAO- 01- 257)

    Major Management Challenges and Program Risks: National Aeronautics and
    Space Administration (GAO- 01- 258)

    Major Management Challenges and Program Risks: Nuclear Regulatory Commission
    (GAO- 01- 259)

    Major Management Challenges and Program Risks: Small Business Administration
    (GAO- 01- 260)

    Major Management Challenges and Program Risks: Social Security
    Administration (GAO- 01- 261)

    Major Management Challenges and Program Risks: U. S. Postal Service (GAO-
    01- 262)

    High- Risk Series: An Update (GAO- 01- 263)

    GAO United States General Accounting Office

    Page 1 GAO- 01- 256 USAID Challenges

    Contents

    Page 2 GAO- 01- 256 USAID Challenges

    Comptroller General of the United States

    Page 3 GAO- 01- 256 USAID Challenges United States General Accounting Office

    Washington, D. C. 20548

    Page 4 GAO- 01- 256 USAID Challenges

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    Overview Page 7 GAO- 01- 256 USAID Challenges

    Overview Page 8 GAO- 01- 256 USAID Challenges

    Overview Page 9 GAO- 01- 256 USAID Challenges

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    Major Performance and Accountability Challenges Page 11 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 16 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 17 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 19 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 20 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 21 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 22 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 23 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 24 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 25 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 26 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 27 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 28 GAO- 01- 256 USAID
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    Major Performance and Accountability Challenges Page 29 GAO- 01- 256 USAID
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    Performance and Accountability Series

    Page 32 GAO- 01- 256 USAID Challenges

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